THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

RIVERSIDE 


GIFT  OF 


Gordon   -atkins 


/ 


The  Chautauqua  Literary  and  Scientific  Ciri-lc. 
STUDIES  FOR  1889-9O. 


AN  INTRODUCTION  TO  POLITICAL  ECONOMY.    Ely  $i  oo 

BIBLE  IN  THE  NINETEENTH  CENTURY.     Townsend 40 

How  TO  JUDGE  OF  A  PICTURE.     Van  Dyke 60 

OUTLINE  HISTORY  OF  ROME.     Vincent  and  Joy 70 

PHYSICS.     Steele i  oo 

PREPARATORY  AND  COLLEGE  LATIN  COURSE  IN  ENGLISH,    i  vol. 

Wilkinson i  30 


AN  INTRODUCTION 


TO 


POLITICAL  ECONOMY 


RICHARD  iTELY  PH.D 


ASSOCIATE  PROFESSOK  OF  POLITICAL  ECONOMY  IN  JOHNS  HOPKINS  UNIVERSITY 


NEW  YORK 

CHAUTAUQUA  PRESS 

1889. 


The  required  books  of  the  C.  L.  S.  C.  are  recommended  by  a  Council 
of  Six.  It  must,  however,  be  understood  that  recommendation  does  not 
involve  an  approval  by  the  Council,  or  by  any  member  of  it,  of  every 
principle  or  doctrine  contained  in  the  book  recommended. 


Copyright  i38<y,  by  II t  NT  i  KATON,  805  liroudway,  New  York. 


PREFAC  E 


IT  has  frequently  been  doubted  whether  the  present  is  the 
best  time  for  the  preparation  of  a  text-book  of  political 
economy,  and  it  has  been  said  that  the  attitude  of  mind 
which  should  characterize  the  political  economist  under  ex- 
isting circumstances  is  one  of  "  pause  and  retrospection." 
There  is  active  dispute  concerning  fundamental  conceptions, 
and  when  one  listens  to  the  controversies  now  going  on  the 
impression  is  apt  to  grow  on  one  that  in  political  economy 
nothing  is  settled.  Topics  as  important  as  wages,  rent,  and 
profits  are  now  under  active  discussion  by  scholars  who  hold 
widely  divergent  views.  It  is  true  that  in  reality  many 
things  are  tolerably  well  settled  in  political  economy,  and 
that  progress  in  the  science  was  never  so  rapid  as  now;  but 
precisely  this  hopeful  outlook  for  the  future  renders  the 
preparation  of  a  text-book  at  present  difficult. 

The  author's  experience  as  a  teacher  and  a  writer  has 
convinced  him  that  brief  economic-  manuals  have  in  the  past 
done  immense  harm.  They  have  conveyed  little  positive 
knowledge,  but  they  have  provided  their  readers  with  a  lot 
of  catch-words  and  simple  "  rules  of  thumb  "  for  the  solu- 
tion of  the  various  socio-economic  problems  which  arise  in 
our  complex  modern  industrial  civilization.  They  have  thus 
turned  the  minds  of  a  multitude  of  half-educated  persons 


4  PREFA  GEL 

away  from  the  careful  observation  of  the  phenomena  of 
actual  life,  and  have  shut  their  eyes  to  truths  easy  enough 
of  perception. 

Reflections  like  the  foregoing  could  not  fail  to  occur  to  the 
author  when  he  was  requested  to  prepare  a  brief  text-book 
of  political  economy,  which,  while  designed  primarily  for  the 
Chautauqua  Literary  and  Scientific  Circle,  should  at  the  same 
time  be  suitable  for  use  in  schools  and  colleges  and  for  gen- 
eral reading.  It  seemed  to  him  very  clear  what  ought  to  be 
done.  Many  things  must  be  passed  over  and  left  for  fur- 
ther discussion  in  monographs  by  scholars  before  they  are 
included  in  an  elementary  text-book.  Nevertheless,  a  gen- 
eral survey  of  the  field  is  important.  If  special  questions 
are  studied  without  the  previous,  or,  at  any  rate,  subsequent, 
perusal  of  an  outline  of  the  entire  science,  the  sense  of  unity 
is  lost.  A  framework  is  needed  in  order  that  special  topics, 
like  taxation,  labor  organizations,  socialism,  may  be  con- 
veniently placed  within  it. 

The  intention  of  the  author  has,  then,  been  to  write  a  work 
descriptive  rather  than  logical,  and  the  ordinary  distribu- 
tion of  space  in  text-books  has  been  abandoned.  More  than 
one  third  of  the  book  has  been  occupied  with  a  description 
of  the  growth  and  characteristics  of  industrial  societv  and 
an  exposition  of  the  nature  of  political  economy.  Many  a 
person  has  read  through  a  text-book  of  political  economy 
without  knowing  what  political  economy  really  means.  It 
has  been  the  aim  of  the  author  to  make,  at  least,  the  true 
significance  of  political  economy  apparent. 


PREFACE.  5 

The  character  of  the  work  and  the  strictly  limited  space 
have  led  the  author  reluctantly  to  omit  many  topics.  It  has 
been  thought  better  to  write  something  suggestive,  and  in 
keeping  with  the  spirit  of  the  book,  about  a  comparatively 
few  topics  than  to  attempt  to  say  a  word  in  didactic  style 
about  every  topic  which  comes  under  the  general  subject  of 
political  economy. 

The  book  is  called  an  Introduction  to  Political  Econ- 
omy. It  is  hoped  that  this  work  will  interest  its  readers, 
will  excite  curiosity,  will  open  their  minds,  and  will  thus 
lead  them  to  continue  their  economic  studies,  for  which 
suggestions  are  given  in  one  of  the  parts  into  which  the 
work  is  divided.  The  impression  which  it  is  desired  that 
this  book  should  leave  is  something  like  this:  "Political 
economy  is  an  interesting  and  most  important  branch  of 
human  knowledge.  I  now  see  what  it  is  all  about,  and  hav- 
ing surveyed  the  field  I  propose  to  take  up  special  questions, 
like  taxation  and  the  labor  movement,  and  study  them  care- 
fully. I  do  not  feel  so  much  that  I  really  know  a  great  deal 
about  political  economy  as  that  I  am  now  in  a  position  to 
learn  something." 

The  author's  indebtedness  to  various  authors  is  sufficiently 
acknowledged  in  references  throughout  the  book.  It  may 
be,  perhaps,  proper  to  say  that  he  is  especially  indebted  to  a 
treatise  of  Professor  Schonberg,  several  times  mentioned, 
in  the  preparation  of  .that  part  of  the  present  work  which 
deals  with  the  development  and  characteristics  of  economic 
society. 


6  PREFACE. 

At  the  close  of  the  chapters  references  are  frequently 
given  to  works  which  will  still  further  elucidate  the  topics 
therein  treated. 

The  author  has  felt  so  keenly  the  responsibility  which 
rested  upon  him  in  preparing  a  text-book  for  the  truly 
immense  Chautauqua  public  that  he  has  asked  Professor 
Franklin  H.  Giddings,  of  Bryn  Mawr  College,  to  read  his 
manuscript  and  proofs,  and  Professor  J.  B.  Clark,  of  Smith 
College,  Professor  Woodrow  Wilson,  of  Wesley  an  Uni- 
versity, and  Professor  Amos  G.  Warner,  of  the  University 
of  Nebraska,  to  read  the  proofs.  P"or  the  suggestions  and 
encouragement  received  from  these  gentlemen  he  is  deeply 
indebted,  and  he  wishes  here  to  express  his  thanks.  The 
author  is  also  indebted  to  Mr.  John  R.  Commons,  one  of  the 
most  gifted  members  of  his  graduate  class,  for  assistance  of 
many  kinds  given  during  the  preparation  of  the  present 
work. 

All  persons  whose  interest  is  specially  awakened,  leaders 
of  circles  and  teachers  who  use  the  book,  unless  they  have  al- 
ready enjoyed  thorough  instruction  in  political  economy,  will 
find  it  to  their  advantage  to  take  the  correspondence  work 
in  political  economy  in  the  Cliautauqua  College  of  Liberal 
Arts,  about  which  the  registrar,  Professor  Frederick  Starr, 
of  New  Haven,  Conn.,  is  always  ready  to  give  information. 

RICIIAKD  T.  ELY. 
Jouxs  HOPKINS  UXIVEKSITY,  BALTIMOKK,  February,  1889. 


CONTENTS. 


PART  I. 

THE  GROWTH   AND   CHARACTERISTICS  OF  INDUSTRIAL  SOCI- 
ETY, AND  THE  NATURE  OF  POLITICAL  ECONOMY. 

PAGE 
CHAPTER    I. 

PRELIMINARY  REMARKS  ox  POLITICAL  ECONOMY  AND  SOCIOLOGY 13 

CHAPTER   II. 

ISOLATED  AND  SOCIAL  ECONOMIC  LIFE 19 

CHAPTER    III. 

CERTAIN  SPECIAL  AND  ELEMENTARY   CHARACTERISTICS  OF  THE   ECO- 
NOMIC LIFE  OF  A  PEOPLE 26 

CHAPTER    IV. 

THE  Two  GREAT  FACTORS  OF  A  NATIONAL  ECONOMY 31 

CHAPTER  V. 
THE  ECONOMY  OF  A  NATION  AN  HISTORICAL  PRODUCT 35 

CHAPTER  VI. 
THE  STAGES  IN  THE  ECONOMIC  DEVELOPMENT  OF  CIVILIZATION 39 

CHAPTER    VII. 

ECONOMIC  STAGES  VIEWED  FROM  THE  STAND-POINT  OF  PRODUCTION  AND 
FUOJI  THE  STAND-POINT  OF  TRANSFERS  OF  GOODS 42 

CHAPTER  VIII. 

A  FEW  MAIN  CAUSES  FOR  THE  EXISTENCE  OF  PRESENT  ECONOMIC  PROB- 
LEMS     55 

CHAPTER   IX. 
SOME  GENERAL  FEATURES  OK  THE  ECONOMY  OF  THE  MODERN  NATION..     71 


8  CONTENTS. 

PAGE 

CHAPTER  X. 
POLITICAL  ECONOMY  DEFINED 94 

CHAPTER   XI. 
OTHER  DEFINITIONS  OF  POLITICAL  ECONOMY 105 

CHAPTER   XII. 
MAIN  PARTS  OF  POLITICAL  ECONOMY Ill 

CHAPTER    XIII. 
ECONOMIC   METHODS 116 

CHAPTER    XIV. 
ECONOMIC  LAWS 1 24 

CHAPTER    XV. 

A  FEW  REMARKS  ON  THE  UTILITY  OF  POLITICAL  ECONOMY,  WITH 
SOME  GENERAL  CONSIDERATIONS  ON  THE  RELATION  OF  POLITICAL 
SCIENCE  TO  OTHER  SCIENCES.  .  128 


PART  II. 

PRODUCTION 

CHAPTER    I. 
INTRODUCTORY 143 

CHAPTER   II. 
MOTIVES  OF  ECONOMIC  ACTIVITY 151 

CHAPTER    III. 
THE  FACTORS  OF   PRODUCTION ICO 

CHAPTER     IV. 

ORGANIZATION'  OF  THE  PRODUCTIVE    FACTORS..         .   1M 


CONTENTS.  9 

PAGE 

PART   III. 

TRANSFERS  OF  GOODS. 

CHAPTER   I. 
INTRODUCTORY 177 

CHAPTER     II. 
MONEY , 184 

CHAPTER     III. 

CREDIT   AND  THE   INSTRUMENTS   OF  CREDIT — BANKS   AND   CLEARING 
HOUSES 196 

CHAPTER  IV. 

THE  REGULATION  OF  INTERNATIONAL  COMMERCE.  .  .  204 


PART  IV. 

DISTRIBUTION. 

CHAPTER    I. 
INTRODUCTORY 213 

CHAPTER     II. 

WAGES  AND  THE  WAGES  SYSTEM 221 

CHAPTER     III. 

LABOR  ORGANIZATIONS 228 

CHAPTER   IV. 
PROFIT-SHARING  AND  CO-OPERATION 235 

CHAPTER   V. 
SOCIALISM 240 

CHAPTER     VI. 

MONOPOLIES 249 

CHAPTER    VII. 

A  F;-:w  ADDITIONAL  REMARKS  ON  SOCIAL   PROBLEMS  AND  REMEDIES 

FOR  SOCIAL  EVILS.  .  .   259 


10  CONTENTS. 

PART  V. 

CONSUMPTION 


PART   VI. 

PUBLIC    FINANCE. 

CHAPTER   I. 
INTRODUCTORY 287 

CHAPTER   II. 

TAXATION-..  .   299 


PART  VII. 

THE  EVOLUTION  OF  ECONOMIC  SCIENCE. 

CHAPTER   I. 
INTRODUCTORY 311 

CHAPTER  II. 

ECONOMIC  IDEAS  IN  THE  ANCIENT  WOULD  AND  THE  MIDDLE  AGES...  314 

CHAPTER   III. 
ECONOMIC  IDEAS  IN  MODERN  TIMES..  315 


PART  VIII. 

A  FEW  SUGGESTIONS  FOR  STUDY  AND  COURSES  OF  READING. 


APPENDIX. 

1.  QPESTIOVS  AVI)  Kxr.nrisKS 335 

'2.  iJiiii.ioiiKArnv .'{44 

INDEX...  .   349 


PART  I. 

THE    GROWTH    AND    CHARACTERISTICS   OF   IN- 
DUSTRIAL SOCIETY,  AND  THE  NATURE 
OF  POLITICAL  ECONOMY. 


CHAPTER  I. 

PRELIMINARY  REMARKS  ON  POLITICAL  ECONOMY  AND  SOCI- 
OLOGY. 

SOME  writers  have  been  inclined  to  discard  formal  defini- 
tions of  sciences  as  unprofitable.  An  entire  scientific  treatise 
is  nothing  but  an  expanded  definition.  A  text-book  of 
physiology  is  nothing  but  an  answer  to  the  question,  "  What 
is  physiology  ?  "  The  present  work  is  a  similar  endeavor  to 
answer  the  question,  What  is  political  economy?  While 
conscious  of  the  imperfections  of  definitions,  particularly 
when  placed  at  the  beginning  of  a  treatise,  the  student  finds 
it  an  advantage  to  have  described  to  him,  in  advance,  in 
rough  outlines,  at  least,  the  field  which  he  is  about  to  in- 
vestigate more  minutely.  We  will  attempt  to  frame  some 
kind  of  an  idea  of  political  economy,  and  of  that  larger 
branch  of  knowledge  of  which  it  is  a  part,  at  the  outset  of 
our  studies,  and  will  then  later  return  to  a  more  detailed 
description  of  the  nature  of  political  economy. 

Political  Economy  a  Part  of  Sociology. — Political 
economy  is  a  social  science,  but  it  is  not  social  science  in  its 
broadest  sense.  Another  name  has  been  reserved  for  that 
larger  branch  of  knowledge,  and  that  is  sociology.  Political 
economy  is  a  part  of  sociology.  Sociology  deals  with  all  the 
phenomena  of  society ;  that  is  to  say,  with  all  that  concerns  men 
living  together  and  having  certain  necessary,  agreeable,  and 
desirable  relations  with  one  another.  It  does  not  deal  with 
individuals  as  such.  It  does  not  tell  us  something  about  John 
and  Henry  and  Robert  and  George,  Susan  and  Jane  and  Sarah 
and  Mary  as  separated,  isolated  personalities,  but  it  treats 
them  and  other  human  beings  as  members  of  an  organiza- 
tion, and  that  organization  is  called  society. 


14  AN  IXTRODUCTION  TO  POLITICAL  ECONOMY. 

The  fact  of  the  necessary  relationship  of  human  beings  to 
one  another  is  brought  out  in  a  thousand  ways  in  the  lan- 
guage of  e very-clay  conversation.  When  we  say  "human 
beings  "  we  separate  men  from  other  beings,  and  imply  a 
common  tie  in  humanity.  This  idea  is  brought  out  still 
more  clearly  when  we  speak  of  others  as  our  fellows.  With- 
out dwelling  upon  words  which  imply  this  intuitive  feeling 
in  various  grades  of  intensity,  it  may  be  remarked  that 
Christianity  offers  us  our  highest  conception  of  a  society 
which  embraces  all  men,  and  in  that  conception  sets  us  a 
goal  toward  which  we  must  ever  move.  The  fatherhood  of 
God  and  the  brotherhood  of  man  are  the  expressions  of  this 
relationship.  Human  progress  can  never  pass  that  goal,  for 
it  satisfies  the  highest  aspirations  of  which  we  are  capable. 

Society  an  Organism. — As  a  first  step  in  the  study  of 
sociology,  and  in  that  branch  of  sociology  called  political 
economy,  it  must  be  clearly  understood  that  society  is  an 
organism;  that  is  to  say,  it  is  composed  of  interdependent 
parts  performing  functions  essential  to  the  life  of  the  whole. 
Society  expresses  a  will  in  various  ways,  and  particularly,  but 
not  solely,  through  government,  and  it  finds  methods  for  the 
execution  of  its  purposes.  Society  punishes  those  who  offend 
it  and  violate  its  well-known  desires,  and  this  punishment  as- 
sumes almost  infinitely  varying  degrees  of  severity,  includ- 
ing even  torture,  disgrace,  and  death.  At  the  same  time 
society  differs  from  many  other  organisms  in  the  fact  that 
its  separate  parts  are  themselves  organisms,  and  that  each  of 
these  parts  has  a  purpose  and  a  destiny  of  its  own.  Society 
is  composed  of  individuals,  but  individuals  find  their  true 
life  in  society. 

Sociology  Defined. — Sociology  is  the  science  which  deals 
with  society.  It  may  be  more  proper  to  say  the  group  of  sci- 
ences, as  sociology,  at  present,  is  only  developed  in  parts,  and 
these  parts  have  as  yet  scarcely  been  connected  into  one  whole. 
Sociology  is  identical  with  social  science  properly  understood, 
but  the  term  social  science  has  unfortunately  been  used  in 
a  narrower  and  less  correct  sense.  Social  science  has  been 


PRELIMINARY  REMARKS.  15 

used  as  equivalent  to  that  branch  of  knowledge  which  is 
concerned  with  the  pi'oper  treatment  of  the  dependent,  delin- 
quent, and  criminal  classes.  What  propriety  there  can  be  in 
restricting  social  science,  or  the  science  of  society,  to  a  con- 
sideration of  the  lowest  and  most  unfortunate  classes  of  soci- 
ety is  not  apparent. 

Sociology  deals  with  social  phenomena,  and  so  does  polit- 
ical economy ;  but  probably  all  readers  of  this  work  instinc- 
tively feel  that  the  two  are  not  identical.  When  we  open  a 
treatise  on  sociology  we  are  not  surprised  to  see  an  exhaust- 
ive treatment  of  the  social  phenomena  of  religion,  of  intem- 
perance, of  marriage,  ;ind  of  divorce,  but  it  can  hardly  be 
necessary  to  say  that  in  themselves  these  things  do  not  belong 
to  political  economy.  The  political  economist  may  very 
properly  have  more  or  less  to  say  about  these  topics,  but  he 
does  not  get  at  them  directly,  but  only  indirectly,  as  bearing 
on  other  phenomena  or  as  themselves  affected  by  other  social 
forces.  The  entire  life  of  man  in  society  is  truly  one,  but  it 
is  so  great,  so  complex  in  all  its  almost  infinite  variety  of 
manifestations,  that  it  seems  necessary  to  separate  it  into 
parts  by  more  or  less  artificial  lines  ;  not  that  any  part  has 
an  independent  existence,  for  each  part  affects  vitally  every 
other  part,  but  that  in  this  manner  we  accommodate  things 
better  to  the  limited  powers  of  man's  intellect. 

The  Departments  of  Social  Life. — Dividing  the  life  of 
society  or  of  a  people  organized  as  a  politically  independent 
society  into  parts,  we  may  call  these  parts  territories  of  social 
life,  or  departments  of  social  life,  or  we  may  use  the  expres- 
sion social  life-spheres.  Eight  great  departments  of  social 
life  have  been  enumerated;  namely,  first,  language;  second, 
art;  third,  science  and  education;  fourth,  the  family  life; 
fifth,  social  life  in  the  narrower  sense,  that  is,  the  intercourse 
of  friends  and  associates  as  seen  in  entertainments,  parties, 
and  meetings  of  various  kinds,  the  interchange  of  ideas  and 
courtesies;  sixth,  religious  life;  seventh,  political  life; 
eighth,  economic  life.  The  economic  life  means  briefly  that 
part  of  man's  life  which  is  concerned  with  what  is  commonly 


16  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

called  "getting  a  living."  Now  it  is  with  this  eighth  great 
fundamental  life  territory  of  a  people  that  political  economy 
has  to  do,  and  we  must  examine  its  character. 

Relation  of  Economic  to  other  Life-Spheres. — But 
the  reader  must  first  be  warned  that  the  scope  of  our  science 
is  neither  small  nor  insignificant  because  we  have  excluded 
so  much,  and  more  especially  because  we  have  excluded  the 
higher  life-spheres  of  society.  Our  department  touches  all 
others,  modifies  and  conditions  all  others,  ought  to  subserve 
all  others,  and  in  studying  it  we  are  examining  those  things 
which  are  fundamental,  those  things  which  serve  as  an  indis- 
pensable basis  for  the  highest  flights  of  the  soul  in  art, 
music,  and  in  religion.  There  is  scarcely  a  phenomenon  of 
society,  perhaps  none  at  all,  which  does  not  come  sooner  or 
later  within  the  range  of  the  economist's  discussion,  although 
he  arrives  at  all  from  his  own  peculiar  starting-point. 

The  Present  Condition  of  Sociology. — Attention  must 
also  be  called  to  the  fact  that  we  are  about  to  consider  one 
of  the  most  fruitful  fields  of  sociological  inquiry.  Sociology 
as  a  whole  is  so  vast  a  subject  that  comparatively  little  prog- 
ress, it  must  be  confessed,  has  been  made  in  its  prosecution. 
This  will  undoubtedly  be  different  in  the  future,  but  the  con- 
dition of  sociology  is  rather  disheartening  at  present.  Only 
few  men  have  done  valuable  work  as  sociologists.  The 
French  philosopher,  Auguste  Comte,  who  lived  during  the 
first  half  of  this  century,  is  often  called  the  father  of  soci- 
ology, and  undoubtedly  in  his  Positive  Philosophy  and  other 
works  he  has  made  valuable  contributions  to  sociological 
knowledge,  and  still  more  valuable  contributions  to  socio- 
logical method.  His  greatest  service  was,  however,  the  im- 
pulse which  he  gave  to  sociological  studies,  and  this  impulse 
is  still  felt.  The  disciples  of  Auguste  Comte  are  called  Posi- 
tivists,  and  are  found  chiefly  in  France  and  England,  but  his 
influence,  transcending  the  sphere  of  his  own  followers,  has 
touched  :ill  modern  students  of  sociology. 

Several  German  writers  have  attempted  work  in  the 
broad  field  of  sociology,  of  whom,  perhaps,  Professor  Albert 


PRELIMINARY  REMARKS.  17 

Scliaffle  is  most  distinguished.  Schaffle  is  the  author  of  a 
great  work,  in  four  volumes,  called  The  Structure  and  Life 
of  the  Social  J3ody.  It  is  erudite,  but  suggestive  rather  than 
exhaustive. 

Herbert  Spencer  is  the  best  known  English  sociologist,  and 
in  -his  various  works,  Study  of  Sociology  Social  Statics, 
Principles  of  Biology ',  and  others,  he  has  covered  a  wide 
field,  but  for  the  most  part  superficially,  and  especially  su- 
perficial are  all  those  parts  which  treat  of  economic  liie  and 
institutions.  While  it  is  not  too  much  to  call  some  of  his 
speculations  crude,  in  their  dogmatism  and  blindness  to  the 
facts  of  social  life,  it  must  be  admitted  that  he  has  rendered 
distinguished  service  to  the  study  of  sociology  in  the  work 
which  he  has  mapped  out  for  others  to  do,  and  in  the  very 
considerable  interest  in  sociological  inquiries  which  he  has 
awakened  both  in  England  and  America. 

One  part  of  sociology,  that  which  deals  with  the  growth 
of  society,  has  been  ably  treated  by  an  American,  Professor 
Lester  F.  Ward,  in  his  Dynamic  Sociology,  a  work  in  two 
stout  volumes. 

This  may  not  exhaust  the  list  of  sociologists,  but  these 
four  names  include  the  principal  sociologists,  and  in  reading 
their  works,  while  making  full  and  frank  acknowledgment 
of  their  erudition,  patient  research,  and  ability,  it  must  be 
confessed  that  the  impression  left  by  all  is  that  of  work  un- 
finishetl,  of  work,  in  fact,  scarcely  more  than  begun,  and  of 
work  of  very  uneven  excellence.  They  are  men  who  are 
feeling  their  way,  and  who,  like  other  explorers,  often  stum- 
ble and  fall.  Suggestion  and  impulse  describe  the  debt  we 
owe  to  sociologists. 

Political  Economy  the  Best  Introduction  to  Soci- 
ology.— -Political  economy,  on  the  other  hand,  is  a  science 
which  is  making  rapid  progress  at  the  present  time,  and  men 
young  and  old,  but  principally  young  men,  in  all  civili/ed 
lauds,  particularly  in  Italy,  (iermany,  England,  and  the 
United  States,  are  devoting  themselves  to  its  advancement 
with  ardor  justified  by  results  already  achieved.  While  it  is 


18  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

recognized  that  political  economy  has  not  long  left  behind 
the  period  of  infancy,  that  a  great  deal  of  what  passes  under 
that  name  is  crude  and  imperfect,  it  is  safe  to  say  that  it  is 
to-day  in  a  most  hopeful  condition,  and  that  at  the  present 
time  political  economy  is  the  best  introduction  to  the  various 
social  sciences  embraced  under  the  general  name  sociology. 


Read  F.  H.  Giddings's  ISocioloyy  and  Political  Economy. 


CHAPTER  II. 

ISOLATED  AXD  SOCIAL  ECONOMIC  LIFE. 

The  Economic  Life. — It  is  not  difficult  to  understand 
what  is  meant  by  economic  life,  as  the  mention  of  a  few  ele- 
mentary facts  explains  it.  Man  has  wants  which  must  be 
satisfied  in  order  that  he  may  live  at  all,  and  other  wants 
which  must  be  satisfied  in  order  that  he  may  live  worthily, 
and  still  other  wants  the  gratification  of  which  ministers  to 
vanity  or  other  evil  traits  of  human  character.  These  wants 
of  man  are  of  the  most  diverse  kinds.  Some  can  be  satisfied 
by  tangible,  material  things,  others  only  with  immaterial  or 
non-corporeal  goods.  Man  is  constantly  striving  to  satisfy 
his  wants  in  order  to  promote  his  welfare  or  to  increase  his 
happiness  in  some  way.  In  so  far  as  he  is  engaged  in  efforts 
to  secure  material  goods  for  the  satisfaction  of  his  wants,  we 
may  speak  of  his  activity  as  economic,  and  the  regular  suc- 
cession of  these  efforts  we  may  call  his  economic  life,  just  as 
we  may  call  efforts  and  experiences  of  another  sort  his  relig- 
ious life.  "In  so  far  as  the  activity  of  man  is  directed  to 
the  acquisition  of  material  things  for  the  satisfaction  of  hu- 
man wants  it  is  called  economic,  and,  .  .  .  like  any  other 
human  activity,  it  is  conditioned  in  its  manifestations  by  the 
nature  of  man  and  by  his  historical  development."  * 

It  is  to  be  noticed  that  this  activity  is  of  two  kinds  ; 
namely,  first,  in  the  acquisition,  second  in  the  employment 
of  material  means. 

Isolated  Economic  Life. — The  economic  activity  of  man 
may  be  isolated  or  it  may  be  social.  It  is  exclusively  or  even 
chiefly  the  first  only  in  the  earliest  stages  of  human  develojv- 

*  Schtinberg,  in  his  Handbucli  dcr  PulitiscJien  Ockonomie,  Bd.  i,  S.  -J,  2le 
A  ullage. 


20  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

ment.  Possibly  it  is  never  strictly  isolated,  because  neither 
in  history  nor  in  accounts  of  the  experiences' of  contemporary 
travelers  and  explorers  do  we  find  human  beings  living  solely 
in  and  for  themselves.  The  beasts  of  the  field  are  not  alto- 
gether isolated  in  their  efforts  to  obtain  food,  nor  in  their 
consumption  of  it,  although  they  differ  considerably  among 
themselves  in  this  respect.  The  lowest  of  the  human  race 
resemble  most  closely  beasts  in  the  individualism  of  their 
economic  life. 

Homer  has  described  the  economic  isolation  of  barbarians 
in  these  lines,  which  refer  to  the  Cyclops: 

li  No  laws  have  they,  they  hold 
No  councils.     On  the  mountain  heights  they  dwell 
In  vaulted  caves,  where  each  one  rules  his  wives 
And  children  as  he  pleases ;  none  give  heed 
To  what  the  others  do."* 

It  has  been  said  that  the  wild  men  of  Australia  never  co- 
operate with  one  another  in  their  economic  efforts,  and  the 
individualism  of  the  blacks  of  "the  heart  of  Africa"  has 
been  described  by  Professor  Drummond,  in  his  work,  Trop- 
ical Africa,  to  be  such  that  in  some  districts  three  natives 
cannot  be  sent  with  a  message,  for  in  that  case  two  of  them 
would  combine  and  sell  the  third  before  they  return.  Sir 
John  Lubbock  uses  these  words  of  savages  in  general  :  "The 
savage  is  always  suspicious,  always  in  danger,  always  on  the 
watch.  He  can  depend  on  no  one,  and  no  one  can  depend 
on  him.  He  expects  nothing  from  his  neighbor,  and  does 
unto  others  as  he  thinks  they  would  do  unto  him.  Thus  his 
life  is  one  prolonged  scene  of  selfishness  and  fear."  f 

While  we  do  not  find  individuals  living  a  strictly  isolated 
economic  life,  we  do  discover  families  or  households  organ- 
ized as  isolated  economic  units,  and  the  family  in  one  shape 
or  another  is  probably  the  first  social  unit.  No  opinion  is 
here  expressed  as  to  the  particular  form  of  family  which  first 

*  The.  Odyssey,  Bk.  ix,  1I5G-140,  Bryant's  translation. 
f  PrtJtistoric  Times,  chapter  xvi. 


ISOLATED  AND  SOCIAL  ECONOMIC  LIFE.  21 

arose.  It  is  simply  meant  to  state  it  as  probable  that  any 
life  of  man  preceding  the  existence  of  some  institution  which 
may  be  called  the  family  could  not  have  been  social ;  that 
where  we  find  society,  there  we  find  the  family  as  a  unit, 
though,  of  course,  larger  composite  units,  as  tribes,  etc.,  may 
exist  above  the  single  family.  We  find  in  history,  and  we 
discover  in  the  records  of  travelers,  an  economic  activity  of 
the  family  which  we  may  call  relatively  isolated.  It  begins 
and  ends  in  itself.  Products  are  gathered  from  nature,  and 
these  are  used  direcdy,  or  after  their  form  has  been  changed, 
to  satisfy  the  wants  of  the  various  members  of  this  economic 
unit.  But  this  is  the  case  only  in  early  times  or  among  peo- 
ple in  an  early  stage  of  development.  Probably  even  in 
this  relatively  isolated  economic  life,  economic  goods  were 
exchanged  occasionally  by  families,  and  thus  a  social  eco- 
nomic life  was  begun.  Nevertheless,  the  progress  was  slow, 
and  a  condition  of  relative  isolation  lasted  for  many  centu- 
ries and  has  continued  on  a  large  part  of  the  globe  up  to  the 
present  day. 

Social  Economic  Life. — Modern  civilization  has,  how- 
ever, produced  rapid  changes,  and  it  may  be  said  that 
the  economic  activity  of  civilized  man  is,  to-day,  chiefly 
social.  The  greater  part  of  what  is  produced  in  our  indus- 
trial centers  is  not  for  the  consumption  of  the  producer,  but 
is  destined  to  satisfy  the  wants  of  others  ;  while  the  wants 
of  the  producer  are  satisfied  by  what  others  give  in  ex- 
change for  his  products.  If  the  reader  goes  to  Gloversville, 
in  New  York  State,  he  will  find  people  engaged  solely  in 
the  production  of  gloves  who  seldom,  and  perhaps  never,  use 
a  glove  of  their  own  making;  if  he  goes  to  Westfield,  Massa- 
chusetts, he  will  find  men  manufacturing  horsewhips  who 
never  have  occasion  to  use  a  whip  they  have  made;  if  he 
goes  farther  east,  to  Haverhill,  Lynn,  Spencer,  Xatick,  Marl- 
boro, Brockton,  or  Worcester,  in  the  same  State,  he  will  see 
almost  the  entire  labor  of  thousands  of  human  beings,  young 
and  old,  men  and  women,  expended  in  the  marvelously  rapid 
production  of  boots  and  shoes — and  not  merely  that,  but  in 


22  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

each  place  chiefly  in  the  production  of  one  kind  of  foot- 
wear, as  women's  and  misses'  fine  shoes  in  Lynn  and  Hav- 
erhill,  men's  medium  and  fine  shoes  in  Brockton,  heavy  boots 
in  Spencer,  brogaus  and  men's  heavy  coarse  shoes  in  Natick, 
and  heavy  boots  and  shoes  of  coarse  grades  in  Marlboro — 
yet  he  will  doubtless  find,  on  inquiry,  that  a  considerable 
portion  of  these  working-men  and  working-women,  and  of 
these  capitalists  with  whom  they  join  their  forces,  have  never 
worn  a  boot  or  shoe  on  which  they  have  labored.  The  same 
thing  holds  true,  though  to  less  extent,  in  agriculture,  and 
cotton-planters  in  the  South  often  obtain  nearly  every  tiling 
which  they  use  in  exchange  for  cotton ;  wheat-growers  in  the 
North-west  frequently  procure  most  of  the  economic  goods 
consumed  by  their  families  by  means  of  purchase,  and  it  is 
probable  that  in  a  near  future  grape-growers  along  the  shore 
of  Lake  Erie,  in  Chautauqua  County,  Xew  York,  will  procure 
nearly  all  the  commodities  which  they  use  in  exchange  for 
grapes.  There  is,  in  fact,  as  we  shall  see  in  the  progress  of 
our  studies  more  clearly,  a  unity  in  the  economic  life  of  a 
civilized  people,  but  not  as  yet  a  unity  in  the  economic  life 
of  humanity.  We  may  thus  speak  of  the  economic  life  of 
the  American  people,  of  the  German  people,  of  the  French 
people.  The  economic  life  of  a  politically  organized  inde- 
pendent people  is  often  called  a  national  economy;  as  the 
national  economy  of  the  Italians.  We  cannot  as  yet  speak 
of  the  economic  life  of  the  world  as  a  unity,  or  as  any  thing 
other  thnn  the  sum  of  several  unities,  although  economic 
interrelations  among  various  nations  are  rapidly  extending. 
These  interrelations  we  may  call  economic  internationalism, 
and  it  is  possible  that  this  will  grow  until  we  have  a  real 
world  economy. 

Productive  Elements  Often  Overlooked. — It  is  nec- 
essary at  this  point  to  call  attention  to  some  important 
facts  which  are  frequently  overlooked.  A  large  part  of 
production  even  now  is  household  production,  as  it  may  be 
called,  and  is  not  designed  for  the  market-place,  which  in- 
deed takes  no  note  of  it.  Everv  well-regulated  household 


ISOLATED  AND  SOCIAL  ECONOMIC  LIFE.  23 

is  an  establishment  where  valuable  things  or  quantities  of 
utility  are  produced.  Food  is  prepared  for  use,  and  pre- 
pared food  is  worth  far  more  than  unprepared,  as  we  dis- 
cover when  we  purchase  it  at  a  boarding-house,  restaurant, 
or  hotel.  Often  the  prepared  food  sells  for  more  than 
twice  the  cost  of  the  unprepared  food.  But  other  utilities 
are  produced  in  the  household.  Clothing  is  prepared  and 
repaired,  comfortable  shelter  is  afforded,  and  strength  of 
body  and  mind  of  the  chief  productive  factor,  the  human 
being,  is  nourished.  It  has  been  claimed  that  the  labor  of 
at  least  half  of  the  women  of  a  country  "is  expended  in 
producing  material  good  things  for  the  use  of  the  produc- 
ers."* No\v  it  is  a  fact  that  more  than  half  of  the  human 
race  in  civilized  nations  is  composed  of  women,  and  if  it  is 
admitted  that  women  labor  as  long  and  as  severely  as  men 
it  follows  that  a  fourth  of  the  labor  of  men  and  women  com- 
bined is  destined  for  the  household  and  not  for  the  market. 
]>ut  this  is  only  a  part  of  the  annual  income  of  the  country 
of  which  no  account  is  taken  in  ordinary  money-estimates 
of  annual  income.  Three  fourths  of  the  population  of  the 
United  States  is  nival,  and  in  the  country  a  vast  amount  of 
material  good  things  produced  is  destined  for  the  household, 
and  is  rarely  financially  estimated.  Vegetables,  small  fruits- 
cultivated  and  wild — butter,  eg<;s,  meat,  fish  caught  in  pub- 
lic waters,  and  game  m:iy  be  mentioned.  Even  wild  nuts 
gathered  are  not  altogether  insignificant.  Large  as  is  this 
aggregate  income  neglected  in  estimates  of  annual  produc- 
tion, it  is  by  no  means  all.  Property  yields  an  income  by 
use.  Mv  o\vn  house  when  occupied  bv  me  as  truly  produces 
a  part  of  my  income  as  when  1  rent  it  to  some  one  else,  for 
in  cither  case  1  receive  simply  a  quantity  of  utilitv.  Horses, 
carriages,  wagons,  furniture,  books,  works  of  art,  and  the 
like,  all  annually  produce  quantities  of  utility,  and  these 
often  have  a  large  market  value  when  oll'cred  for  sale.  Vet 
the<e  utilities,  when  produced  by  goods  owned  by  those  who 
enjoy  them,  largely  escape  valuation.  All  this  will  show 
*  So*1  Ivlwin  C.immn'.s  Elementary  Pvlitifiil  Eo>n»my,  Part  ii,  .5  rf. 


24  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

ho\v  miserably  inadequate  and  even  absurd  are  current 
estimates  of  average  per  capita  prodncti«>n  of  wealth,  as 
that  the  average  wealth  daily  produced  in  the  United 
States  is  only  forty  cents,  or  fifty  cents,  per  capita,  as  the 
case  may  be. 

Misleading  Comparisons  between  the  Past  and 
the  Present. — Another  important  fact  to  be  noticed  in  this 
connection  is  the  misleading  nature  of  ordinary  comparisons 
between  the  wealth  annually  produced  at  the  present  time 
and  the  wealth  annually  produced  at  an  early  d:iy,  say  fifty 
years  ago.  While  household  production  is  now  large,  it  un- 
doubtedly has  relatively  diminished  in  importance.  Produc- 
tion of  things  which  are  bought  and  sold  in  the  market-place, 
and  are  consequently  readily  estimated  in  money,  is  con- 
stantly gaining  in  importance  on  household  production  of 
material  good  things.  Hence  annual  production  of  material 
good  things,  or,  broadly  speaking,  of  economic  goods  which 
we  estimate  in  money,  increases  more  rapidly  than  real  an- 
nual production  ;  and  there  is,  consequently,  a  tendency 
always  to  exaggerate  progress,  and,  indeed,  to  count  as  prog- 
ress some  things  which  arc  retrogression.  Should  boarding- 
house  and  hotel  life  totally  displace  private  housekeeping  it 
would  increase  the  apparent  annual  production  of  wealth. 

Economic  Life  Denned. — Summing  up  what  has  been 
paid,  we  may  define  the  economic  life  of  a  people  as  its  regu- 
lar systematic  activity  for  the  acquisition  and  employment 
of  material  goods  for  the  satisfaction  of  its  wants.  We  may 
in  a  similar  manner  speak  of  the  economic  activity  of  any 
person — natural  or  artificial;  as  of  a  merchant,  a  farmer,  a 
manufacturer,  or  a  city,  a  township,  a  county,  a  State,  a 
railway  company,  a  bank,  or  a  manufacturing  corporation. 
We  also  use  the  word  economy  for  economic  life,  as  the 
economy  of  a  family  or  of  a  nation. 

The  economic  life  of  a  people  embraces  the  economic  ac- 
tivities of  all  its  individual  members  and  of  all  its  political 
units  for  the  acquisition  and  employment  of  material  goods, 
not  merely  for  the  satisfaction  of  individual  wants,  but  for 


ISOLATED  AXD  SOCIAL  ECONOMIC  LIFE.  25 

the  satisfaction  of  wants  of  schools  and  churches  and  gov- 
ernments, local  and  general.* 

The  Economist  not  Confined  to  the  Material  Life. 
— But,  Hgain,  it  is  necessary  to  remark  lhat  we  are  not  con- 
cerned merely  with  the  material  life  of  men  in  its  narrow 
sen-e,  for  there  can  scarcely  be  a  phase  of  the  life  of  society 
which  does  not  come  within  the  province  of  the  economist. 
But  other  phases  of  social  life  than  the  material  are  consid- 
ered, rather  indirectly  than  directly,  as  influencing  the  pro- 
duction of  material -goods  or  influenced  thereby.  The  econ- 
omist and  the  physician,  for  example,  both  discuss  the  san- 
itary condition  of  cities,  and  both  propose  measures  to  lessen 
the  awful  mortality  among  the  children  of  the  urban  poor, 
but  they  come  to  the  consideration  of  this  same  topic  by 
very  different  routes.  The  physician  takes  up  directly  the 
health  of  the  people,  while  the  economist  proceeds  from  a 
consideration  of  labor  as  one  of  the  factors  of  production, 
and  from  the  welfare  of  the  laboring  population.  The  econ- 
omist finds  one  factor  in  production  in  an  unsatisfactory  or 
diseased  condition,  and  searches  for  causes  and  proposes 
remedies.  Likewise  the  educator  and  the  economist  both 
discuss  industrial  training,  but  each  from  his  own  peculiar 

stand-point. 

*  Schiiuberg  is  followed  closely  here. 


CHAFIER  III. 

CERTAIN    SPECIAL   AND   ELEMENTARY   CHARACTERISTICS  OF 
THE  ECONOMIC  LIFE  OF  A  PEOPLE. 

1.  The  Economic  Life  not  for  Self. — It  is  characteris- 
tic of  the  economic  life  of  the  modern  man  that  it  is  not  for 
self  but  for  others.     As  lias  already  been  shown,  goods  are 
produced  not  for  use  but  for  exchange.    It  follows  as  a  direct 
consequence  of  this  that  the  division  of  society  into  economic 
classes  with  the  wide-extended  division  of  labor  is  one  of  the 
fundamental  facts  of  modern  economic  life.     One  class  pro- 
duces one  thing  and  another  class  a  second  thing,  and  so  on 
indefinitely,  and  as  the  variety  of  commodities  is  great  the 
number  of  economic  or  industrial  classes  must  be  large. 

2.  Dependence  of  Man  upon  Man. — The  dependence 
of  man  upon  his  fellows  is  another  fundamental   fact.     We 
speak  of  the  increase  in  the  number  and  importance  of  com- 
mercial and  industrial  relations,  and  we  simply  give  expres- 
sion to  a  movement  which  all  can  observe.     But  relationship 
in  itself  means  dependence.     There  cannot  be  a  relation  of 
one;  it  must  be  a  connection  between  two  or  more.      Tins 
economic  dependence  of  man  i/pon  man  t/nis  increases  with 
the  prof/re,™  of  industrial  civilization  /    and    in   this    single 
phrase  lies   locked  up  the  explanation   of  many  of  the  com- 
plicated and  distressing  phenomena  of  our  times.     u  In   his 
economic  position,  in  the  manner  and   in  the  success  of  his 
economic  activity,  in  all  that  pertains  to  his  income  and   to 
his   resources,   the   individual    becomes  dependent  upon   the 
economic  activity  and  acts  of  others."* 

\Ve  may  take  as   an   example  of  this  dependence  of  the 
modern  man  the  manufacture  of  watches.     If  a  man  niaim- 

*  Sciiinl»_-r-. 


THE  ECONOMIC  LIFE  OF  A  PEOPLE.  27 

faetures  a  whole  watch  he  is  dependent  upon  others.  If  the 
husbandman  is  shiftless  or  unskillful  he  will  have  no  surplus 
grain  to  exchange  for  a  watch.  If  the  miner  stop  his  work, 
the  silver,  gold,  and  other  metals  which  enter  into  the  watch 
will  not  be  supplied.  If  the  spinner  and  weaver  cease  their 
operations  the  watchmaker  will  suffer  for  clothing.  If  the 
shoemaker  becomes  indolent  the  watchmaker  will  be  forced 
to  go  without  covering  for  his  feet,  and  so  on  indefinitely. 

Let  us  now  take  another  step.  Suppose  a  man  manufactures, 
not  a  whole  watch,  as  formerly,  but  only  a  small  part  of  one, 
as  at  present — let  us  say  the  three  hundredth  part  of  a  watch. 
How  greatly  is  his  dependence  upon  others  increased  !  lie 
is  now  dependent  upon  hundreds  of  others  engaged  in  the 
production  of  watches,  as  well  as  upon  other  industrial 
classes.  It  is  not  improbable  that  he  may  be  dependent 
upon  a  million  others  for  the  necessaries  of  life,  so  wonderful 
is  the  socio-economic  organism  in  which  and  through  which 
we  live.  Every  day  brings  fresh  illustrations  of  the  growing 
economic  dependence  of  man  upon  his  fellows,  showing  that 
production  is  becoming  more  and  more  social  in  its  nature, 
and  less  and  less  individual.  Railway  strikes  offer  a  good 
illustration  of  the  interdependence  of  m:in  in  industrial  so- 
ciety. The  entire  economic  life  of  the  nation,  and  the  life 
even  of  other  nations,  is  affected  by  acts  of  a  comparatively 
few.  A  recognition  of  this  economic  dependence  of  man 
upon  man  has  even  led  to  consequences  in  legislation  and  in 
judicial  decisions,  limiting  the  industrial  liberty  of  those 
engaged  in  particularly  important  occupations.  Some  have 
gone  so  far  as  to  wish  to  make  it  a  criminal  offense  for  those 
engaged  in  transportation  to  manage  "their  own  affairs  in 
their  own  way,"  as  the  saying  is;  that  is,  freely  to  com- 
bine their  forces  and  obtain  for  their  labor  the  highest 
remuneration  and  most  favorable  conditions  possible  by 
peaceful  means,  including  threats  to  quit  work.  It  is  replied 
that  their  occupation  is  not  merely  their  own  business  but 
the  business  of  the  entire  community,  and  that,  therefore, 
they  are  under  obligations  to  the  general  public.  This  is 


23  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

true,  but  it  should  be  remembered  that  obligation  carries 
with  it,  as  its  correlative,  duty.  The  general  public  can  claim 
that  employes  of  transportation  companies  are  under  obli- 
gations to  it  in  case  it  recognizes  that  it  owes  a  duty  to  these 
employes,  and  that  duty  must  be  to  see  that  they  are  fairly 
paid  for  reasonable,  not  excessive,  toil,  and  that  the  dangers 
to  which  they  are  exposed  are  reduced  to  a  minimum.  It 
has  been  held  by  a  distinguished  judge  of  New  York  that 
transportation  companies,  having  received  something  from 
the  general  public,  namely,  franchises,  are  bound  to  render 
service  to  the  public,  and  must  so  treat  their  own  employes 
as  to  render  them  willing  to  work.  This  is  far  more  reason- 
able because  duties  are  in  this  case  imposed  in  consideration 
of  valuable  things  received. 

The  purpose  of  this  illustration  is  to  bring  clearly  to  the 
mind  of  the  reader  some  of  tlie  features  of  our  industrial 
organism.  It  is  plainly  admitted  that  in  special  cases  a 
man's  work  concerns  not  merely  himself  but  the  general  pub- 
lic, and  the  difference  between  one  sort  of  woik  and  another 
is  not  so  much  of  kind  as  of  degree.  When  the  Reading 
Road  coal  miners  in  Pennsylvania  struck  in  January,  1N8H, 
it  was  found  to  affect  in  many  different  ways  millions  of 
their  fellow-beings.  Coal  became  dearer,  and  this  was  felt 
bv  consumers  of  coal  ;ili  over  the  eastern  part  of  the  United 
tS  tales  at  least.  But  this  higher  price  affected  not  merely 
fuel  consumed  for  heating  and  cooking  purposes,  but  also 
that  used  in  productive  establishments,  and  thus  caused  a 
cessation  of  labor  in  some  of  them,  and  threatened  to  throw 
out  of  work  a  whole  armv  of  men  when  the  strike  stopped  in 
February  of  the  same  year.  The  hlixxard  and  snow-storm 
in  the  spring  of  1S8*,  which  interrupted  communication  by 
rail  and  telegraph  on  the  Atlantic  seaboard  of  the  United 
States,  demonstrated  clearly  the  interdependence  of  sections 
of  our  country. 

The  old  household  economy  was,  relatively  speaking,  in- 
dependent. What  the  household  produced  it  enjoyed,  and 
it  might  live  in  the  midst  of  plenty  while  its  neighbors  were 


THE  ECONOMIC  LIFE  OF  A  PEOPLE.  29 

suffering  from  all  kinds  of  economic  calamities.  There 
may  have  been,  and  was,  some  kind  of  mutual  dependence 
in  an  immediate  neighborhood,  but  this  rapidly  grew  less 
with  increa.se  of  distance,  and  often  almost  disappeared  at  a 
distance  of  a  hundred  miles.  Charles  Egbert  Craddock's 
book,  The  Prophet  of  the  Great  /Smoky  Mountains,  describes 
well  a  rude  kind  of  isolated  economic  independence.  The 
people  of  this  region,  exchanging  goods  for  goods  and  using 
no  monev ,  were  troubled  by  no  questions  of  the  currency. 
Speaking  of  the  settlement  in  the  Big  Sin»ky,  Craddock 
Buys:  "  It  was  hard  to  say  what  might  be  bought  at  the 
store  except  powder  and  coffee,  and  sugar  perhaps,  if  '  long- 
sweetenin"  might  not  suffice;  for  each  of  the  half-dozen 
small  farms  was  a  type  of  the  region,  producing  within  its 
own  confines  all  its  necessities.  Hand-looms  could  be 
glimpsed  through  open  doors,  and  as  yet  the  dry  goods 
trade  is  unknown  to  the  homespun-clad  denizens  of  the  set- 
tlement. Beeswax,  feathers,  honey,  dried  fruit,  are  bartered 
here,  and  a  night's  rest  has  never  been  lost  for  the  perplexi- 
ties of  the  currency  question  on  the  Big  Smoky  Mountains." 
Silver  legislation  and  greenback  decisions  were  alike  indif- 
ferent to  them.  Yet  how  wretched  this  independence  !  how 
illusory!  For  tin1  chief  and  most  trying  dependence  of  man 
is  brought  about  by  physical  laws,  and  associated  effort  to 
rule  nature  may  and  does  increase  the  real  freedom  <  f  men, 
while  it  renders  man  more  dependent  than  formerly  upon 
his  fellows.  At  the  same  time  law  and  custom  attempt  to 
regulate  and  control  this  dependence  of  man  upon  man  so 
as  to  mitigate  its  severities.  When  the  dependence  of  one 
person  upon  another  takes  the  form  of  mutual  obligation  be- 
tween e<i'i;ils  in  strength,  il  is  often  not  felt  as  a  hnrdship  at 
ail.  It  was  evidently  meant  by  the  Governor  of  the  uni- 
verse that  man  should  seek  union  with  his  fellows.  This  is 
his  salvation. 

3.  Political  Independence  the  Basis  of  a  National 
Economy.  —  A  nation  whose  economic  activity  and  institu- 
tion* wo  dutii-'iiato  bv  the  term  economic  Ufa  or  national 


30  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

economy  must  always  be  a,  politically  independent  people,  a 
number  of  men  who  are  organically  joined  together  in  an  in- 
dependent political  unity  and  who  form  in  this  unity  an 
independent  State.*  This  presupposes  a  common  possession 
of  a  territory,  independence  of  other  peoples,  and  the  exist- 
ence of  a  highest  State  power  which  declares  law  and  right, 
which  prescribes  the  necessary  legal  rules  for  the  execution 
of  the  desires  of  its  individuals,  including  economic  actions, 
and  enforces  obedience.  This  is  substantially  a  definition 
of  a  State,  but  it  may  perhaps  be  better  formulated  in  these 
words:  The  State  is  the  union  of  a  stationary  people,  occu- 
pying a  defined  territory,  under  a  supreme  power  and  a 
definite  constitution.  It  is  a  continuous  conscious  organism 
and  a  moral  personality  which  has  its  foundations  laid  in 
the  nature  of  man,  and  its  purpose  is  the  welfare  of  the 
people,  f 

*  The  American  Union  constitutes  the  renl  American  State.  Our  com- 
monwealths have  only  a  limited  sovereignty,  and  are  imperfect  Slates  iu  the 
real  sense  of  the  word  State;  they  are  only  parts  of  a  jrreat  State. 

f  This  definition  is  chiefly  taken  from  Mulford's  work,  The  Nation. 


CHAPTER  IV. 

THE  TWO  GREAT  FACTORS  IN  A  NATIONAL  ECONOMY. 

The  economic  life  of  a  nation  is  the  product  of  two  great 
factors  ;  the  first  of  these  to  be  considered  is  the  territory, 
or  portion  of  the  earth  occupied. 

1.  Territory. — When  we  examine  the  influence  of  terri- 
tory on  economic  life  we  must  direct  our  attention,  first,  to 
the  character  of  the  surface.  It  will  make  a  vast  difference 
in  the  features  of  the  economy  of  a  nation  whether  the  sur- 
face of  the  country  is  level  or  hilly  or  mountainous. 

Soil. — We  should  in  the  second  place  take  note  of  the 
soil  itself,  and  of  what  is  below  the  surface  of  the  earth. 
The  importance  of  these  considerations  becomes  manifest 
when  we  reflect  on  the  character  of  the  national  economies  of 
various  countries,  as,  for  example,  of  the  United  States.  Ger- 
many, and  Switzerland.  American  prairies  are  at  least  a  par- 
tial explanation  of  the  invention  of  the  steam-plow;  the  treas- 
ures below  the  earth's  surface,  of  the  peculiar  economic  life 
of  eastern  and  indeed  western  Pennsylvania;  while  sunny  hill- 
sides in  Germany  account  for  the  vineyards  along  the  Rhine, 
and  the  mountains  of  Swit/erland  give  a  clue  to  common 
property  in  pastures,  to  line  cheeses,  and  to  numerous  small 
industries,  as  well  as  to  the  sturdy  independence  and  demo- 
cratic institutions  of  the  Swiss  people. 

The  "Water  Privileges  and  their  special  character  must  in 
the  third  place  claim  our  attention,  for  they  are  of  peculiar 
importance  in  shaping  the  economy  of  a  nation.  A  line 
coast  on  an  ocean  favors  international  commerce,  and  great 
inland  streams  like  the  Mis.-issippi  and  Missouri,  and  mag- 
nificent lakes  like1  Michigan,  Superior,  Erie,  and  Ontario,  en- 
courage the  growth  of  domestic  trade.  Fine  fulls  of  water 


32  AX  IXTIIODUCTIOX  TO  POLITICAL  ECONOMY. 

promote  manufactures,  as  we  may  see  in  the  valley  of  the 
Connecticut,  and  in  Augusta,  Georgia,  favorably  situated  on 
the  Savannah.  The  scarcity  of  water  in  the  "  far  West,"  and 
the  wrong  policy  which  has  allowed  private  individuals  to  gain 
control  over  such  streams  as  exist,  go  far  to  show  how  land- 
monopoly  in  certain  regions  of  our  country  was  established 
and  is  still  supported. 

The  Atmosphere  is  the  fifth  feature  of  the  physical 
attributes  which  go  to  make  up  territory.  Differences  in 
atmosphere  explain  peculiarities  of  economic  life.  The  favor- 
able climate  on  the  shores  of  Lake  Erie  is  an  indispensable 
condition  of  the  fine  fruit  grown  in  the  western  part  of 
New  York  State. 

Size  must  next  be  mentioned.  The  great  size  of  a  coun- 
try like  the  United  States,  admit! ing  of  a  rare  degree  ot 
national  economic  independence  and  of  most  diversified  pur- 
suits, is  an  immense  advantage  to  the  American  people. 

Neighboring  Nations. — Finally,  the  position  of  a  coun- 
try with  respect  to  neighbors  must  affect  materially  its  en- 
tire life.  Germany,  situated  in  a  great  plain  on  the  continent 
of  Europe,  surrounded  by  hostile  nations,  is  an  illustration. 
The  bare  statement  of  the  facts  relating  to  the  situation  of 
Germany  shows  that  the  Germans  must,  as  things  are,  be  a 
warlike  nation. 

2.  Man. — The  second  great  factor  of  the  two  which  pro- 
duce a  national  economy  is  the  human  factor,  man;  and  we 
must  treat  this  also  under  various  sub-heads: 

a.)  Economic  Activity  of  Individuals. — The  economic 
activity  of  the  individuals  in  the  country  will  first  receive 
our  attention.  The  national  economy  is  not  a  mere  addition 
of  all  private  economies  in  the  nation,  nor  of  all  private 
economics  plus  all  public  and  quasi-public  economies.  The 
economic  life  of  a  nation  may  perhaps  be  better  compared 
to  a  chemical  compound  which  is  something  different  from 
the  elements  composing  it,  and  is  yet  determined  in  its 
character  by  these  elements.  Water  is  not  merely  oxygen 
plus  hydrogen.  It  is  a  new  thing.  We  must,  then,  pass  un 


THE  TWO  ORE  A  T  FA  CTORS  7JV  A  NA  TIONAL  ECOXOXT.     S3 

from  a  consideration  of  the  physical  situation  and  environ- 
ment to  the  economic  traits  of  the  human  beings  who  make 
up  the  nation.  Their  activity,  their  perseverance,  their  in- 
tegrity, their  skill,  all  must  be  examined  if  we  would  under- 
stand the  national  economy. 

b.)  Legislation  and  Administration. — The  second 
sub-head  comprises  legislation  and  administration,  and,  like 
the  first,  is  one  form  of  the  human  factor.  It  is  difficult  to 
say  whether  this  should  precede  or  follow  the  first  sub-head, 
in  a  perfectly  logical  arrangement.  Individual  economic 
activities  largely  shape  legislation  and  administration,  but 
these  in  turn  profoundly  affect  individual  economic  activities. 
Thucydides  says  that  the  explanation  of  all  historical  occur- 
rences is  that  A  causes  Ji  and  B  causes  A.  Action  is  accom- 
panied by  reaction.  This  is  also  the  case  with  respect  to 
men  and  laws.  Men  make  laws,  and  these  in  turn  in  their 
reaction  make  men  what  they  are. 

The  industrial  importance  of  legislation  and  administra- 
tion is  generally  underestimated.  Even  where  government 
is  reduced  to  its  lowest  terms  it  must  do  much  to  make  pos- 
sible the  existence  of  an  orderly,  peaceable  society.  What 
would  be  tin1  condition  of  property  and  inheritance  without 
laws?  Property  could  not  exist  at  all,  in  our  present  sense 
of  that  word,  without  government — for  we  are  now  consider- 
ing the  right  and  not  the  things  over  which  that  right  i*  ex- 
ercised. Laws  regulating  the  inheritance  of  property  exist 
every-where,  and  profoundly  affect  the  character  of  the  na- 
tional economy,  making  one  country  radically  unlike  another. 
Laws  governing  the  relations  of  man  to  wife  are  found  in 
every  civilized  nation,  and  the<e  have  to  do  with  economic 
relations  as  well  as  other  relations.  Laws  of  contract,  laws 
establishing  patent-rights,  laws  designed  to  protect  children 
and  other  helpless  classes,  may  also  be  mentioned  as  illustra- 
tions. 

A  comparison  of  France  and  England  reveals  im  st  m. irked 
differences  in  their  economic  life.  The  English  farmer, 
renting  a  farm  of  a  great  landlord,  and  the  agricultural  1-i- 


34  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

borer  are  prominent  features  of  rural  life  in  England,  while 
small  peasant  proprietors,  farmers  tilling  their  own  little  es- 
tates, attract  the  attention  of  the  traveler  in  France.  What 
is  the  cause  of  this  difference  ?  Certainly  the  law  has  much 
to  do  with  this;  for  in  England  primogeniture  and  entail  ob- 
tain, while  in  France  a  father  is  compelled  by  law  to  divide 
the  bulk  of  his  property  equally  among  his  children. 

Factor  one  becomes  relatively  less  important  and  factor 
two  becomes  relatively  more  important  as  civilization  ad- 
vances. Man  gains  increasing  power  over  nature  and  makes 
the  wilderness  blossom  like  the  rose.  The  country  about 
Halle  on  the  Saale,  where  the  writer  once  studied,  was,  it  is 
said,  naturally  barren,  but  now  it  is  like  a  garden.  Man's 
skill  has  produced  the  change.  Man  has  subjugated  nature. 
Once  a  city  could  exist  only  on  a  great  body  of  water,  but 
the  highways  of  modern  times  enable  cities  to  spring  up  a 
hundred  miles  from  any  important  navigable  stream. 


CHAPTER  V. 

THE  ECONOMY  OF  A  NATION  AN  HISTORICAL  PRODUCT. 

The  Law  of  Change. — The  next  main  point  to  engage 
our  attention  in  our  examination  of  the  characteristics  of  a 
national  economy  is  the  fact  of  successive  changes  in  its  his- 
torical formation.  All  know  how  the  uneducated  talk. 
Suppose  changes  in  laws  or  institutions  are  suggested.  Peo- 
ple frequently  smile  in  a  superior  kind  of  way  and  say,  "It 
does  very  well  for  the  theorist  to  talk  about  such  things,  but 
it  is  only  theory."  Conditions  of  property,  labor,  and  capital 
cannot,  in  their  opinion,  be  changed,  and  they  assume  that 
such  as  they  are  now  they  will  continue  to  be.  "No,"  say 
they,  "  things  will  go  on  in  pretty  much  the  same  good  old 
way."  Now,  if  there  is  any  such  thing  as  a  good  old  way  in 
nature  or  in  society,  the  man  has  never  yet  appeared  who 
discovered  it.  There  is  none.  The  assumption  that  then- is 
such  a  thing  is  a  mere  fiction.  Take  the  one  economic  factor 
of  labor.  It  is  found  in  a  condition  of  slavery,  in  a  condition 
of  serfdom,  and  in  a  condition  of  free  contract.  But  these  are 
only  names  for  the  three  general  conditions  in  which  labor  has 
been  found,  and  within  each  one  of  these  conditions  then1 
has  been  a  multitude  of  changes.  Slavery  has  assumed  a  vast 
variety  of  forms,  some  extremely  harsh  and  some  extremely 
mild,  with  almost  infinite  gradations  between  the  two  ex- 
tremes. Serfdom  at  times  appears  as  harsh  as  slavery,  and  il  is 
also  found  in  forms  which  differ  little  from  freedom,  and  which 
are  doubtless  in  some  respects  superior  to  the  condition  of 
the  ordinary  laborer  who  is  free  to  make  his  own  bargains, 
or  who,  as  we  say,  lives  under  the  r'c.<jhnr  of  free  contract. 
Free  contract  in  its  turn  means  many  different  tilings:  some- 
times, indeed,  the  oppression  by  the  employe  of  the  one 


3.5  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

who  employs  labor,  but  oftener  the  practical  dependence  of 
the  laborer  on  account  of  the  pressure  of  economic  necessity; 
at  times,  indeed,  a  dependence  which  virtually  amounts  to 
slavery,  as  has  been  seen  in  the  case  of  tailors  in  London 
employed  by  so-called  "  sweaters,"  or  small  contractors,  who 
have  reduced  their  workmen  to  such  a  condition  that  perhaps 
a  do/en  have  only  one  coat  among  them,  and  they  are  kept 
prisoners  in  the  den*  where  they  work.  Combinations  of  la- 
borers are  now  introducing  changes  in  the  reyinie  of  free  con- 
tract, for  organizations  make  contracts  for  a  multitude  of 
individuals.  Laws  undergo  change,  and  institutions,  which 
are  the  outgrowth  of  laws  and  custom,  are  gradually  but  per- 
petually undergoing  modification.  Property  is  in  a  contin- 
ual flux.  A  large  part  of  landed  property  was  once  common 
property;  that  is  to  say,  owned  by  a  body  of  persons,  town, 
state,  or  city,  in  their  organic  capacity.  Village  communi- 
ties once  owned  land  which  was  parceled  out  among  the 
citizens  or  used  in  common.  The  greater  part  of  land  in 
civilized  nations  has  become  the  property  of  individuals, 
but  we  now  observe  a  reverse  process  of  some  significance. 
Forests  are  becoming  in  modern  countries  public  property 
once  more,  and  the  process  has  begun  even  in  the  United 
States.  It  is  bound  to  continue.  We  see  cities  :ilso  purchas- 
ing— in  some  cases  repurchasing— land  for  public  purposes, 
especially  for  pleasure  grounds.  One  great  species  of  prop- 
erty, railways,  has  in  Prussia  mostly  passed  out  of  private^ 
hands  into  the  property  of  the  State,  and  charter  conditions 
of  railways  are  likely  to  bring  this  about  in  Austria,  France, 
and  elsewhere  in  a  comparatively  near  future.  The  tenure 
of  private  property,  or  the  conditions  under  which  it  is  held, 
also  chancre  from  time  to  time,  now  in  one  direction,  now  in 

O  '  * 

another. 

The  Evolution  of  Law. — A  distinguished  student  of 
early  law,  Sir  Henry  Sunnier  .Maine,  has  clearly  shown  the 
perpetual  changes  which  all  law  undergoes.  "  We  are  in 
danger,"  says  ihi*  jurist,  "of  overestimating  the  stability 
of  legal  conceptions.  Legal  conceptions  are  indeed  e\- 


TIII-:  XCOXO.MY  OF  A  NATI  ox  AN  HISTORICAL  PRODUCT.   37 

tremely  stable;  many  of  thorn  have  their  roots  in  the  most 
solid  portions  of  our  nature.  .  .  .  This  great  stability  is  apt 
to  suggest  that  they  are  absolutely  permanent  and  inde- 
structible. .  .  .  What  I  have  stated  as  to  the  effects  upon 
law  of  a  mere  mechanical  improvement  in  land  registration 
is  a  very  impressive  warning  that  this  position  is  certainly 
doubtful,  and  possibly  not  true.  The  legal  notions  which  I 
have  described  as  decaying  and  dwindling  have  always  been 
regarded  as  belonging  to  what  may  be  called  the  osseous 
structure  of  jurisprudence;  the  fact  that  they  are  neverthe- 
less perishable  suggests  very  forcibly  that  even  jurisprudence 
itself  cannot  escape  from  the  great  law  of  evolution."*  The 
evolution  of  property,  especially  of  property  in  land,  has 
been  described  in  great  detail  by  a  learned  Belgian,  Pro- 
fessor de  Laveleye,  in  a  work  which  bears  the  title  l*rimitioe 
Property. 

The  Necessity  of  Historical  Study.— We  find  marked 
economic  differences  between  various  periods  in  the  life  of 
one  nation,  and  almost  equally  marked  differences  between 
the  economic  institutions  of  contemporaneous  nations.  All 
this  shows  first  the  necessity  of  a  careful  historical  and  sta- 
tistical study  of  economic  activities  and  institutions  in  the 
past  and  in  the  present.  It  reveals  to  us,  in  the  second  place, 
the  folly  of  those  who  would  prescribe  the  same  laws  for  all 
people  and  for  all  times,  or  who  would  pass  judgment  on  tin; 
institutions  of  Prussia  under  Frederick  the  Great  as  if  these 
same  institutions  existed  to-dav  in  America  or  in  England. 

Peculiar  Position  of  Political  Economy.  —  The 
changes  which  continually  take  place  in  our  economic  life 
are  in  great  part  the  product  of  human  will,  for  this  will  of 
ours  is  a  chief  economic  factor.  Political  economy  is  a  pe- 
culiar science,  occupying  a  position  mid\vay  between  natur.il 
sciences  and  mental  and  moral  sciences.  It  deals  with  rela- 
tions between  mind  and  matter,  or,  more  broadly  speaking, 
man  and  the  external  physical  universe.  Our  economic  life 
is  in  part  governed  bv  laws  over  which  we  have  little  cdi- 

*   M.i.IlC1--    A''/''///   L.nr   a:,- 1   CliHtiDH,  cllM]'.   X. 


35  .1-V  MTHODUCTJON  TO  POLITICAL  ECONOMY. 

trol,  and  to  a  still  greater  extent  by  physical  laws  which  we 
cannot  alter  in  the  least,  hut  which  we  can  only  use;  but  our 
power  is  nevertheless  very  great,  and  it  is  daily  becoming 
greater  as  we  learn  better  how  to  use  natural  laws,  and  thus 
to  subjugate  nature.  Within  certain  limits  we  can  have  just 
such  a  kind  of  economic  life  as  we  wish,  and  herein  lies  our 
responsibility,  as  a  people,  for  the  character  of  our  national 
economy.  It  is  at  our  peril  that  we  try  to  evade  or  shift  this 
responsibility.  We  must  continually  progress,  and  "  Prog- 
ress in  economic  life  consists  in  this:  that  our  economic  activ- 
ities and  institutions  realize  in  a  higher  degree  than  hereto- 
fore the  demands  of  humanity  and  justice,  and  become  the 
ba>is  of  a  higher  civilization  of  individuals  and  nations."* 


Read  Ward's  J)i/»a)nir  Sociology,  introduction  to  vol.  i, 
and  M.  de  Laveleye's  Primitive  Property,  author'*  preface  to 
original  edition,  and  chap.  i. 

*  Schouberg,  /.  c. 


CHAPTER  VI. 

THE  STAGES  IX  THE  ECONOMIC  DEVELOPMENT  OP  CIVILIZA- 
TION. 

Change  in  Economic  Life. — While  the  evolution  of  our 
economic  life  proceeds  without  interruption,  in  taking  a  sur- 
vey over  human  history  we  discover  such  marked  differences 
gradually  appearing  at  long  intervals  that  we  divide  this 
evolution  into  parts  which  we  may  designate  as  stages.  We 
mean,  then,  l>y  stages  in  economic  development  changes  and 
advances  in  the  methods  of  procuring  economic  goods,  in 
their  character,  variety,  and  number,  in  the  distribution  of 
goods,  in  the  manner  in  which  material  and  immaterial  wants 
are  satisfied;  in  short,  in  all  that  is  included  in  the  designa- 
tion economic  life. 

Prehistoric  Economy. — There  seems  to  be  evidence  of 
the  existence  of  a  prehistoric  man  who  obtained  material 
goods  like  beasts,  by  simply  taking  possession  of  natural 
products,  exercising  little  or  no  control  over  nature,  and 
protecting  himself  from  the  elements  only  by  caves  or  tlie 
simplest  contrivances.  Tin;  construction  and  use  of  his 
rude  buildings  appear  to  have  been  learned  from  the  lower 
animals.  Man  was  in  such  a  condition  a  slave  of  nature. 
Human  law  did  not  restrain  him.  There1  was  no  law,  as 
there  is  no  law  to-day  in  the  ''heart  of  Africa.''  Never- 
theless, the  modern  man,  whose  daily  life  in  a  thousand 
ways  is  guided,  directed,  and  controlled  by  the  statutes 
framed  by  himself  and  others,  is  a  thousand  times  freer, 
and  wise  laws  even  increase  freedom.  Kconomic  freedom 
is  a  far  more  important  thing  than  political  freedom,  but 
the  two  are  quite  different.  What,  advantage  is  it  to  me  to 
have  the  legal  right  to  take  a  trip  around  the  world  if  I 


40  A  X  fXTR  OD  UCTIOX  TO  POLITIC  A  L  ECONOM  Y. 

never  have  the  economic  means  to  enable  me  to  do  so? 
"What  advantage  is  it  to  be  able  to  seek  another  employer, 
pYovided  there  is  no  other  who  cares  for  my  services,  and  my 
present  employer  alone  stands  between  me  and  death  by 
starvation  ?  So  the  savage  is  free  to  come  or  to  go,  to  work 
or  to  play,  so  far  as  laws  of  man  are  concerned,  but  nature 
enslaves  him  more  pitilessly  than  Draconian  laws.  "  The 
true  savage,"  says  Sir  John  Lubbock,  "  is  neither  free  nor 
noble  ;  he  is  a  slave  to  his  own  wants,  his  own  passions  ; 
imperfectly  protected  from  the  weather,  he  suffers  from  the 
cold  by  night  and  the  heat  of  the  sun  by  day;  ignorant  of 
agriculture,  living  by  the  chase,  and  improvident  in  success, 
hunger  often  stares  him  in  the  face,  and  often  drives  him  to 
the  dreadful  alternative  of  cannibalism  or  death."  * 

Modern  Man. — With  the  foregoing  passage  should  be 
compared  the  following  sentence  from  Sir  Henry  Maine  : 
u  With  us,  I  need  scarcely  say,  there  is  little  conscious  ob- 
servance of  legal  rules.  The  law  has  so  formed  our  habits 
and  ideas  that  courts  of  justice  are  rarely  needed  to  compel 
obedience  to  it,  and  thus  they  have  apparently  fallen  into 
the  background."  f 

The  Economic  Stages. — This  earliest  existence  of  the 
human  species — earliest  at  any  rate  from  the  stand-point  of 
evolution  —  is  something  so  i emote,  and  something  about 
which  our  knowledge  is  so  fragmentary  and  uncertain,  that 
we  are  scarcely  able  to  treat  it  as  a  separate  stage  in  economic 
evolution.  We  be<;in  in  our  description  of  economic  stages 

O  I  O 

with  the  time  when  men  had  learned  to  kindle  lires,  to  eat 
meat,  and  to  live  in  some  kind  of  political  communities,  how- 
ever imperfect.  We  then  divide  economic  development  from 
this  time  up  to  the  present  into  live  stages  when  viewed 
from  tht!  stand-point  of  the  production  of  material  goods, 
and  into  three  stages  when  viewed  from  the  stand-point  of 
the  transfers  of  these  goods.  This  second  classification  of 
stages  must  be  regarded  as  subordinate  to  the  first.  The 

*  Pi-<lii<t<rric    Ttinra.   Hiiip.  xvi. 

f  L'tiily  Law  ijhd   Catkin,   chap.   xi. 


STAGES  IN  ECONOMIC  DEVELOPMENT  OF  CIVILIZATION.    41 

following  are  the  stages  into  which  we  may  roughly  divide 
economic;  progress  when  it  is  viewed  from  the  stand-point  of 
him  who  inquires  how  goods  are  produced  : 

1.  The  hunting  and  fishing  stage. 

2.  The  pastoral  stage. 

3.  The  agricultural  stage. 

4.  The  trades  and  commerce  stage. 

5.  The  industrial  stage. 

"We  may  ask  the  question,  How  are  goods  transferred  from 
person  to  person?  When  we  examine  the  methods  of  trans- 
fers of  goods  with  which  we  are  acquainted  we  find  that  we 
may  divide  economic  progress  from  the  feeble  beginnings  of 
civilization  to  our  own  day  into  three  stages  with  respect  to 
these  transfers,  and  these  three  stages  are  the  following: 

1.  The  period  of  truck  economy. 

"2.  The  period  of  money  economy. 

3.  The  period  of  credit  economy. 

These  stages  will  be  briefly  described  in  the  following 
chapter. 


Sir  John  Lubbock  treats  of  savage  man  and  his  evolution 
in  a  most  interesting  manner  in  the  last  chapter  of  his  Pre- 
historic Times.  It  is  chapter  xvi,  and  entitled,  "  Concluding 
Remarks."  The  student  would  do  well  to  read  also  chap- 
ter iii  of  Drummond's  Tropical  Africa,  on  "  The  Aspect  of 
the  Heart  of  Africa  :  The  Country  and  People." 


CHAPTER  VII. 

ECONOMIC  STAGES  VIEWKD  FROM  TUB  STAND-POINT  OF  PRO- 
DUCTION AND  FROM  THE  STAND-POINT  OF  TRANSFERS  OF 
GOODS. 

I.  ECONOMIC  STAGES  VIEWED  FKOM  THE  STAXD-POIXT  OF  PKODCCTIOX. 

1.  The  Hunting  and  Fishing  Stage. — Nature  is  the 
principal  factor  in  production  in  this  stage.  Labor,  and  more 
especially  capital,  play  very  subordinate  roles.  Man  still  con- 
tents himself  with  what  nature  gives.  Labor  is  expended 
chiefly  in  procuring  her  bounties.  Animals  are  not  tamed 
and  rendered  subject  to  man  ;  still  less  can  any  traces  be 
found  of  attempts  to  improve  useful  animals  by  breeding,  or, 
to  use  Mr.  Alfred  Russel  Wallace's  happy  phrase,  by  the 
substitution  of  man's  selection  for  natural  selection.  Prod- 
ucts are  not  transformed  by  manufacturing  processes  ; 
goods  are  not  even  stored  up  in  time  of  abundance  to  make 
provision  for  a  future  time  of  dearth.  The  American  wild 
Indian,  a  type  of  this  stage  of  evolution,  lives  in  a  condition 
of  gluttony  when  the  hunt  is  successful,  wasting  good  food 
with  unconcern,  and  suffers  the  following  week  when  good 
fortune  no  longer  waits  on  his  bow  and  arrow.  In  this  re- 
spect as  in  others  he  exhibits  the  traits  of  a  child  among 
civilized  men. 

Economic  action  is  relatively  isolated.  It  is  confined 
mainly  to  the  family,  within  which  there  is  a  rudimentary 
division  of  labor  ;  but  there  is  no  common  organic  activity. 
It  is,  for  the  most  part,  each  man  for  himself,  (roods  are  ac- 
quired not  for  exchange  but  for  immediate  use,  although 
there  seems  to  be  no  unwillingness  to  make  exchanges  when 
opportunity  offers  to  get  something  new  and  attractive,  if 


ECONOMIC  STAGES.  43 

we  may  judge  from  the  traits  of  American  Indians  and  the 
negroes  of  Africa. 

As  there  is  no  real  division  of  labor,  but  all  perform  the 
same  thing, there  are  no  economic  classes;  no  employers  and  no 
employes  and  no  industrial  conflicts.  The  very  vocabulary 
of  modern  political  economy,  like  wages,  capital,  strikes, 
lockouts,  taxation,  arbitration  and  conciliation,  customs 
duties,  must  be  wanting.  The  phenomena  of  so  called  over- 
production or  under-consumption  and  crises  are  as  unknown 
to  people  living  \n  this  stage  as  the  economy  of  tlie  possible 
inhabitants  of  Jupiter  to  us.  The  greater  part  of  property  is 
common,  as  is  all  land.  Private  property  is  confined  to  one's 
arms,  one's  household  goods,  and  the  immediate  rewards  of 
one's  labor. 

Hunting  Tribes. — There  is  some  difference  between 
those  living  primarily  on  the  products  of  the  chase  and  only 
secondarily  on  fish,  and  those  who  reverse  the  process.  The 
environment  of  each  class  modifies  essentially  its  character- 
istics. Confining  ourselves  for  the  moment  to  those  living 
111  the  hunting  sta<_*e,  we  find  a  high  development  of  such 
qualities  as  cunning,  endurance,  skill,  bodily  strength,  but 
the  mode  of  life  does  not  lead  to  the  development  of  tech- 
nical skill  nor  to  a  reflection  upon  the  processes  of  nature. 
This  condition  of  life  presupposes  large  territories  and  a 
sparse  population.  It  has  been  estimated  that  in  a  popula- 
tion like  this,  living  purely  on  the  products  of  the  chase, 
each  hunter  requires  tiftv  thousand  acres,  or  seventy-eight 
square  miles, for  his  support,  an  area  which  in  Belgium  would 
support  twenty-five  thousand  people.  There  seems  to  be 
reason  to  suppose,  however,  that  this  is  an  under-estimate 
of  the  population  which  can  be  supported  by  the  chase:  cer- 
tainly so  if  :uiy  subordinate  means  of  support  exist,  like 
lishinir.  Berries  have  almost  always  been  a  partial  means  of 
support,  as  has  other  wild  fruit.  Certainly,  however,  the 
population  must  be  thin,  and  wars  may  be  regarded  as  au 
economic  nccessitvfor  the  barbarians  living  in  thissta-jfe 
whenever  there  is  not  an  abundance  of  unoccupied  land, 


44  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

just  as  cannibalism  has  been  described  as  an  economic  ne- 
cessity for  human  beings  of  the  most  degraded  sorts;  human 
beings  to  whom  Sir  John  Lubbock  is  .scarcely  willing  to 
attribute  responsibility.  The  perpetual  warfare  with  man 
and  beast  which  is  a  condition  of  existence  develops  the 
bravery  which  has  been  so  much  admired  in  the  American 
Indian. 

Fishing  Tribes. — Those  living  primarily  and  chiefly 
from  the  products  of  fishing  are  different.  As  might  be 
expected,  they  are  more  peaceable  and  population  is  denser, 
as  so  large  a  territory  is  not  required  for  the  support 
of  a  given  number  of  people.  A  larger  accumulation  of 
the  products  of  past  labor,  or  capital,  is  found  among  ti slier- 
tribes,  as  there  is  less  need  of  migrations.  Dwellings  are 
of  a  more,  permanent  character,  and  boats  and  fishing  imple- 
ments are  constructed.  Labor  is  a  more  important  factor, 
and  on  the  whole  the  power  of  man  over  nature  is  greater 
than  amonf  huntinsr  tribes.  People  living  in  the  fishing 

~  ™  I  O 

Rtnge  can  now  be  found  only  in  the  frigid  zone.  Tribes  liv- 
ing on  the  produce  of  fishing  have  seldom  become  nomads, 
but  generally  agricultural,  and  often  they  have  taken  early 
to  commerce  and  navigation. 

2.  The  Pa.storal  Stage. — When  hunting  tribes  begin 
to  domesticate  animals  they  enter  usually  upon  the  pas- 
toral stage.  The  earliest  chapters  of  the  Bible  give  us 
vivid  pictures  of  peoples  living  in  the  pastoral  stage.  Man 
does  not  live  merely  by  taking  what  nature  offers,  but  he 
acts  upon  nature.  He  gains  a  partial  control  over  nature. 
The  element  of  labor  comes  forward  more  prominently. 
Labor  is  required  to  seek  out  pastures  and  to  protect  ani- 
mals. Families,  clans,  and  tribes  living  in  this  stage  have 
no  settled  abiding  place,  but  they  wander  to  and  fro  on  the 
face  of  the  earth  to  find  food  for  their  flocks.  As  land  is 
not  cultivated  it  requires  a  large  area  to  support  a  single 
family,  and  over-population  is  a  frequently  recurring  phe- 
nomenon. Tribes  separate,  part  going  om;  way  and  part 
another,  or  they  attempt  to  get  more  land  by  conquest  of 


ECOXOUfC  STAGES.  45 

others.  Such  a  separation  IB  described  in  the  Bible  in  the 
thirteenth  chapter  of  Genesis,  where  it  is  said  that  "  Abram 
was  very  rich  in  cattle,  in  silver,  and  in  gold.  .  .  .  And  Lot  also, 
which  went  with  Abram,  had  flocks,  and  herds,  and  tents.  And 
the  land  was  not  able  to  bear  them,  that  they  might  dwell 
together:  for  their  substance  was  great,  so  that  tliey  could  not 
dwell  together.  And  there  was  a  strife  between  the  herd- 
men  of  Abram's  cattle  and  the  herdmen  of  Lot's  cattle.  .  .  . 
And  Abram  said  unto  Lot,  Let  there  be  no  strife,  I  pray  thee, 
between  me  and  thee,  and  between  my  herdmen  and  thy  herd- 
men Is  not  the  whole  land  before  thee?  Separate  thy- 
self, I  pray  thee,  from  me:  if  thou  wilt  take  the  left  hand, 
then  I  will  go  to  the  right;  or  if  thou  depart  to  the  right  hand, 
then  I  will  go  to  the  left."  Thus  they  separated,  and  is  it 
not  a  perfect  picture,  netting  before  us  the  economic  condi- 
tions of  the  time  and  place? 

I>ut  attempted  conquests  frequently  take  the  place  of 
peaceful  separations,  and  tribes  of  brethren  which  arc  too 
large  for  the  territory  already  occupied  seek  to  g-iin  more  by 
displacing  other  tribes.  This  over-population  explains  the 
•warlike  incursions  of  barbarian  host-*  into  Kurope  from  tin* 
heart  of  Asi  i,  and  the  wanderings  of  the  nations  in  the  early 
centuries  of  the  Christian  era.  This  part  of  history,  like 
others,  cannot  be  understood  without  a  knowledge  of  political 
economy. 

Land  was  for  the  most  part  common  property;  common, 
that  is,  to  members  of  the  tribes,  for  rights  of  other  tribes 
to  property  or  even  to  life  were  not  recognized.  Within  the 
tribe  or  nation  — if  we  may  properly  use  the  latter  expres- 
sion— there  was  a  very  real  brotherhood,  but  ethical  ties  did 
not  pass  beyond  tribal  bounds.  Stranger  and  enemy  are 
often  expressed  by  the  same  word.  Hut  even  the  tribal 
claims  to  land  ean  scarcely  be  designated  by  the  modern 
word  property.  The  only  right  in  the  land  was  one  of 
possession;  the  ri^ht  of  use  as  distinguished  from  the  right 
of  property.  This  must  not  be  understood  to  mean  that  in 
any  historical  time  there  was  no  such  thing  as  a  right  of 


46  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

private  property  in  land,  and  that  land  was  never  bought 
and  sold.  Stationary  peoples  existed  contemporaneously  with 
wandering  tribes,  and,  while  the  greater  part  of  land  was 
held  in  common,  pieces  of  land  may  have  been  private  prop- 
erty. Abraham,  it  will  be  remembered,  bought  of  Ephron, 
the  son  of  Zohar,  a  field  for  a  burial-place  for  Sarah  his 
wife,  and  paid  four  hundred  shekels  of  silver  for  it.  Yet 
the  ceremonies  connected  with  it  indicate,  as  has  been  well 
shown  by  Sir  Henry  Maine  in  similar  cases,  that  the  land 
had  belonged  to  the  tribe,  and  that  at  the  time  it  was  a  mat- 
ter in  which  the  tribe  felt  themselves  concerned,  and  not 
merely  a  private  transaction  between  Abraham  and  Ephron 
the  son  of  Zohar. 

The  pastoral  stage,  nevertheless,  allowed  large  accumula- 
tions of  property  in  the  form  of  cattle  and  of  precious 
stones,  precious  metals,  and  finely  woven  fabrics,  or,  in  gen- 
eral, of  capital. 

Extremes  of  "Wealth. — "SVe  also  find  in  this  stage  enor- 
mous differences  between  the  possessions  of  various  members 
of  the  clan  and  the  tribe.  The  poor,  the  well-to-do,  and 
the  rich  already  exist.  Abraham,  for  example,  was  "a 
mighty  prince."  Among  the  sons  of  Ileth  men  are  divided 
into  employers  and  employed — the  latter  generally  slaves — 
and  economic  classes  arc  formed.  Slavery  was  not  a  possi- 
bility in  the  first,  economic  stage,  for  maintenance  with 
weapons  was  impossible,  and  masters  could  not  arm  their 
slaves.  The  conquered  were  slaughtered  in  the  earlier 
stages,  but  in  the  pastoral  stage  their  lives  were  frequently 
spared  and  they  were  reduced  to  slavery.  A  milder  form 
of  warfare  was  thus  introduced.  Women  and  children  were 
evidently  spared  earlier  than  conquered  males,  who  were  fre- 
quently massacred  after  the  beginning  of  the  pastoral  stage, 
and  also  even  after  the  later  stages  began  to  exist. 

A  more  regular  economic  life  and  a  higher  degree  of 
probability  of  permanent  sufficiency  of  food  succeeded  the 
1'onncr  irregularity  of  superfluity  and  direst  want. 

Exch.mges   in   the    pa>toral    stage   are   still  the  exception. 


ECONOMIC  STAGES.  47 

The  economy  of  each  family  or  household  is  for  the  most 
part  sufficient  unto  itself. 

The  leisurely  and  often  quiet  mode  of  life,  the  nature  of 
the  work — watching  the  Hocks  in  the  open  fields—  leads  to  an 
observation  of  natural  phenomena,  especially  those  of  the 
heavens,  and  astronomical  knowledge  exists  in  a  rudimentary 
form.  Religion  and  poetry  were  the  outcome  of  a  contem- 
plative and  reflective  life,  and  in  the  language  of  shepherds 
highly  figurative  speech  is  common. 

\Ve  find  among  nomads  a  high  appreciation  of  personal 
freedom,  warlike  customs,  but  no  feeling  for  home.  Patri- 
otism, as  we  understand  it,  was  of  a  later  growth.  All  the 
civilized  nations  of  Europe  once  led  the  nomadic  pastoral 
lite  on  the  highlands  of  middle  Asia. 

3.  The  Stationary  Agricultural  Stage. — Agriculture 
is  in  the  third  stage  added  to  the  keeping  of  flocks,  to  the 
chase,  and  to  fishing.  A  greater  variety  of  food  is  offered 
to  man,  who  now  ceases  his  wandering  life.  A  denser  popu- 
lation becomes  possible,  and  the  union  of  different  settle- 
ments into  a  larger  political  whole  gradually  forms  the  mod- 
ern nation.  Dwellings  now  become  finer  and  more  substan- 
tial, ami  there  is  an  increase  in  the  course  of  time  in  the 
number  of  objects  included  in  private  property,  and  the 
interests  on  the  side  of  quiet  and  orderly  progress  become 
stronger.  It  is  not,  however,  clear  that  the  transition  from 
the  pastoral  and  the  nomadic  stage  is  always  at  once  or  even 
for  some  time  accompanied  by  an  increased  number  of  ob- 
jects included  in  private  property.  There  would,  on  the 
contrary,  from  the  re-searches  of  Sir  Henry  Maine,  appear  to 
be  evidences  of  an  opposite  movement.  Village  communities 
were  probably  the  earliest  form  of  settled  agricultural  life 
among  the  Aryans,  and  these  continue  in  Kast  India,  in  Rus- 
sia, and  elsewhere,  even  to  the  present  day.  Land  belonged 
to  the  village,  and  the  arable  portion  of  the  common  terri- 
tory was  allot  ted  from  year  to  year  or  for  longer  periods  to  the 
members  of  the  community,  while  pasture-land  and  forest- 
land  were  used  in  common.  This  is  generally  recognized, 
3 


48  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

but  it  appears  that  frequently  movables  were  common  prop- 
erty, and  even  to-day  in  Montenegro  there  are  village  com- 
munities in  which  the  earnings  of  a  member  who  has  left  the 
community  and  gone  out  into  the  world  are  still  claimed  by 
the  community.  Sir  Henry  Maine  tells  us  also  of  a  Russian 
village  whose  chief  income  is  derived  from  a  boarding-school 
kept  by  ladies  who  are  members  of  the  community.  Where, 
however,  the  village  community  does  not  exist  at  all,  or  has 
ceased  to  exist,  rights  of  private  property  appear  gradually 
and  steadily  to  expand,  and  to  cover  an  increasing  number 
of  things.  The  general  rule  in  this  stage  is  communal  prop- 
erty in  land  with  personal  rights  of  usufruct.  Each  one  has 
certain  rights  according  to  his  needs  and  situation,  possibly 
according  to  rank,  in  the  common  pastures  and  common 
lands.  Love  of  home  and  country  now  arise.  Production  is 
still  largely  carried  on  in  comparative  isolation.  Things 
produced  are  consumed  chiefly  in  the  household,  and  few 
exchanges  take  place.  Such  commerce  as  exists  ministers 
chiefly  to  luxury,  and  this  long  continued  to  be  the  case, 
•which  partially,  at  least,  explains  the  hostility  of  ancient 
philosophers  and  of  the  fathers  of  the  Church  to  commerce. 

This  stage  endured  for  centuries  among  many  peoples 
until  the  Stiidtebilihinf/ — the  building  of  the  cities — in  the 
tenth  and  eleventh  centuries.  It  was  not  wholly  displaced, 
but  only  modified,  unceasingly  modified,  with  the  progress  of 
time,  by  subsequent  stages  of  economic  life.  To-day  the 
marks  of  this  stage  of  life  are  clearly  discernible  in  our  in- 
dustrial life  even  in  America.  The  word  "  common  "  is  an 
instructive  survival.  The  Boston  "Common"  and  "com- 
mons" of  other  Ne\v  England  towns,  pieces  of  land  still  left 
in  common  ownership,  are  parts  of  larger  tracts  once  held  in 
common,  and  on  which  all  citixens  had  rights  of  pasturage 
and  other  rights  of  usufruct. 

4.  Trades  and  Commerce  Stage.— Hand-labor,  so- 
called,  becomes  an  important  factor  in  this  stage.  Raw 
materials  are  transformed  by  the  skill  of  man,  and  his  power 
over  nature  becomes  more  marked.  Commerce  does  not 


ECONOMIC  STA  QES.  49 

spring  up,  for  this  has  already  existed,  but  it  begins  to  play 
a  far  more  important  part  in  industrial  life,  and  the  finer 
products  of  one  region  or  country  are  exchanged  for  those  of 
another.  Even  bulky  products  not  quickly  perishable  are 
transported  long  distances  when  this  can  be  done  by  water. 
Important  cities  on  the  sea-coast  and  on  great  rivers  arise, 
and  these  become  centers  of  culture  and  refinement.  Mines 
are  worked,  the  use  of  money  becomes  more  general,  and  a 
radical  change  in  the  entire  economic  life  of  the  nation  is 
observed.  This  life  becomes  a  real  organism,  and  the  people 
who  live  it  have  entered  upon  the  era  of  modern  civilization. 

Economic  Classes  and  the  Rise  of  Cities. — The  divis- 
ion of  labor,  beginning  on  estates  of  powerful  temporal  and 
spiritual  lords  and  in  convents,  gradually  extends,  and  popu- 
lation is  divided  according  to  occupation  into  a  large  num- 
ber of  economic:  classes.  Cities,  the  most  active  centers  of 
the  new  life,  become  objects  of  hostility  to  old  magnates, 
and  frequently  unite  with  distant  and  more  powerful 
princes  against  feudal  lords  for  protection,  and  at  the  same 
time  strengthen  central  powers.  Dependents  of  feudal  lords 
are  encouraged  to  tly  to  the  cities,  and  the  legal  maxim  is 
established,  "  City  air  makes  free.1'  Residence  in  a  city 
makes  a  former  serf  a  free  man.  (iuilds  of  free  men  are 
gradually  developed,  and  these  foster  the  growth  of  trades 
and  commerce,  using  their  power  for  good  at  lirst,  but  later, 
in  a  period  of  decay,  for  evil,  in  the  establishment  of  exclu- 
sive privileges  and  onerous  monopolies.  Changes  in  eco- 
nomic legislation  and  administration  take  place.  Non-material 
products  are  bought  and  sold.  Writers,  teachers,  and  art- 
ists are  found  as  classes  in  the  economic  organism.  In  an- 
tiquity the  Egyptians,  Indians,  Phenicians,  Assyrians,  Mede*, 
the  Persians,  the  (Jre-'ks,  and  Romans  occupied  this  position. 
The  civili/ed  nations  of  the  present  day  lived  in  this  stage 
until  the  nineteenth  centurv,  and  in  our  South  until  the  Civil 
War. 

5.  The  Industrial  Stage. — The  industrial  stage  is  the 
period  in  which  the  great  civilized  nations  of  the  earth  are  now 


60  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

living,  and  to  a  description  of  which  the  rest  of  this  book  will 
be  chiefly  devoted.  We  observe  in  this  stage  far-reaching 
changes  in  the  economic  organism  of  society,  due  largely  to 
a  marvelous  extension  of  the  principle  of  division  and  com- 
bination of  labor.  This  was  made  possible,  was  indeed  ne- 
cessitated, by  the  application  of  steam  to  industry  and  the 
improvement  in  the  means  of  communication  and  transport. 
The  political  freedom  and  nominal  legal  equality  of  all  men 
— formerly  regarded  as  a  mere  Utopia — are  now  realized. 
Sciences  and  arts  have  advanced  with  giant  strides. 

As  we  call  this  stage  the  industrial,  we  may  speak  of  the 
industrial  national  life  as  well  as  economic  national  life.  The 
two  expressions  are  often  used  interchangeably.  We  can 
speak  of  industrial  society  as  well  as  economic  society.  The 
difference  to  be  observed  between  the  two  words  is  that 
economic  is  more  general  in  its  use,  and  that  industrial  is  fre- 
quently confined  to  this  last  stage  of  development.  Econ- 
omy has  also  a  wider  range  of  use  than  industry.  We  thus 
speak  of  a  national  economy,  but  not  in  the  same  sense  of  a 
national  industry,  for  the  latter  expression  would  be  generally 
understood  to  mean  one  pursuit  or  occupation  in  the  national 
economy. 

Before  we  pass  on  to  a  description  of  some  of  the  general 
characteristics  of  modern  economic  life  it  is  necessary  to 
speak  briefly  of  the  three  stages  into  which  economic  prog- 
ress may  be  divided  with  respect  to  transfers  of  goods. 

II.  ECONOMIC  STAGES  VIEWED  FROM  THE  STAND-POINT  OF  TRANSFERS  OF 

GOODS. 

1.  Truck-Economy. — Truck-economy  is  the  term  used 
to  denote  the  period  which  '  precedes  the  use  of  money. 
Barter  is  often  used,  but  it  is  too  narrow.  Darter  implies 
mutual  or  two-sided  transfers,  whereas  the  element  of  re- 
ciprocity is  often  absent  in  transfers  of  goods.  There  are 
one-sided  transfers  as  well  as  two-sided  transfers.  Taxes, 
presents,  inheritances,  are  examples  of  one-siiled  transfers  of 
goods.  Barter  is  included  as  a  sub-head  under  truck-econ- 


ECONOMIC  STAGES.  51 

omy,  but  it  includes,  to  be  sure,  the  greater  part  of  the  trans- 
fers.    We  have,  then, 

A.  One-sided  transfers  of  goods. 

B.  Two-sided  transfers  of  goods,  or  barter. 

Under  B  we  have  three  sorts  of  barter:  a,  material  goods 
for  material  goods;  b,  material  goods  for  services;  c,  services 
for  services. 

2.  Money-Economy. — The  use  of  money  as  a  medium 
of  exchange  becomes  common  and  displaces  truck  for  the 
most   part,    though    transfers    without    the  intervention    of 
money  are  frequent. 

3.  Credit-Economy. — Credit  is  the  instrument  for  the 
greater  number  of  exchanges.     Money  is  still  used,  but,  in 
the   latest   development   of   credit-economy,  only   as  "small 
change."     Banks  are  the  chief  organs  of  society  for  credit- 
economy.      We  live   now   in   the   period   of  credit,  and  the 
volume  of  money  is  small  when  compared  with  the  amount 
of    annual  transactions   in    what  are  called  instruments   of 
credit,  by  which  we  mean  principally  checks,  drafts,  and  bills 
of  exchange.     The  receipts  of  banks  are  calculated  in  terms 
of  money,  but  an  American  bank    in  a  great  city  will  in   a 
day's  business  frequently  handle  over  forty  dollars  in  instru- 
ments of  credit   for   every   dollar   in   actual    money.     -Many 
modern   phenomena  are  due  to  credit.      Crises  and  so-called 
over-production  are  closely  connected  with   credit-economy. 
More  will  be  said   about  the  features  of  our  present  eredit- 
economy  in  subsequent  chapters. 

The  Economic  Stages  not  Exclusive.— The  division 
of  economic  progress  into  three  stages  with  reference  to  the 
manner  in  which  goods  are  transferred  has  been  criticised, 
and  one  criticism  has  been  already  mentioned.  This  second 
classification  is  subordinate  to  the  first.  The  period  of  truck 
would,  in  a  rough  kind  of  way,  be1  coincident  with  the  hunt- 
ing and  fishing  and  pastoral  stages,  and  would  continue  on 
into  the  stationary  agricultural  stage  until  that,  began  to  pass 
over  into  the  trades  and  commerce  stage.  A  great  deal  of 
truck  and  barter  still  occurs  in  the  trades  and  commerce 


52  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

stage,  but  money  has  become  a  general  medium  of  exchange, 
and  probably  this  stage  could  be  called  a  period  of  money- 
economy.  Credit-economy  is  really  only  a  part  of  the  indus- 
trial stage,  and  belongs  to  the  nineteenth  century.  One  fact 
alone  is  sufficient  to  show  the  change  from  the  eighteenth 
century  to  the  nineteenth.  Banks  existed  before  the  pres- 
ent century,  but  were  comparatively  few  in  number,  were 
chiefly  confined  to  a  few  cities,  and  were  not  an  essential 
part  of  the  entire  national  economy.  There  were,  for  exam- 
ple, only  three  banks  in  the  United  States  a  hundred  years 
ago,  and  now  some  three  thousand  national  banks  are  doing 
business  in  our  country  in  addition  to  banks  organized  under 
State  laws.  Banking  means  credit  economy. 

It  is  also  said  that  money  does  not  exclude  truck,  and 
credit  does  not  exclude  money,  but  this  can  scarcely  be 
urged  as  a  valid  ground  against  this  division  of  economic 
progress  into  these  three  periods.  Money  is  even  found  in 
the  period  which  we  ought  to  call  truck-economy.  These 
terms  used  simply  signify  the  dominant  characteristics  of 
periods  which  gradually  and  perhaps  almost  imperceptibly 
pass  into  one  another,  just  as  the  vegetable  kingdom  passes 
over  into  the  animal  kingdom. 

Prehistoric  archaeology  has  been  divided  into  three  pe- 
riods, namely,  the  stone  age — sub-divided  into  two  parts,  the 
paheolithic  and  the  neolithic — the  bronze  age,  and  the  iron 
age,  but  the  later  period  does  not  exclude  the  earlier.  Stone 
implements  are  used  both  in  the  bronze  and  iron  ages. 


The  literature  in  English  touching  this  economic  progress 
of  man  through  stages  is  inadequate.  Manv  valuable  works 
exist  on  the  origin  nnd  growth  of  civilization,  but  they  do 
not  deal  with  the  subject  from  an  economic  stand-point,  and 
it  is  necessary  to  place  many  incidental  remarks  together  to 
obtain  a  picture — even  so  imperfect — of  the  economic  life 
of  the  tribes  and  nations  discussed.  The  following  works 
will  be  helpful: 


ECONOMIC  STA  GES.  53 

Sir  John  Lubbock's  Prehistoric  Times,  particularly  the 
last  chapter,  and  also  his  work,  Origin  of  Civilization  and 
Primitive  Condition  of  Man.  Dr.  Daniel  Wilson's  Pre- 
historic Man,  dealing  chiefly  with  natives  of  America.  Re- 
ports of  the  Bureau  of  Ethnology  connected  with  the 
Smithsonian  Institution,  Washington.  Morgan's  Ancient 
Society.  Tylor's  Anthropology,  particularly  chapters  ix  to 
xi.  Sir  Henry  Maine's  works  are  standard  authority  on  vil- 
lage communities,  particularly  in  India.  The  four  works 
written  l>y  him  of  importance  in  connection  with  this  chap- 
ter are  Ancient  Law,  Village.  Communities  in  tlie  East  and 
Wext,  Early  History  of  Institutions,  and  Early  Law  and 
Custom,  especially  chapter  viii  in  the  last  named  book,  on 
east-European  house  communities.  A  popular  account  of 
Russian  communities  is  given  in  the  interesting  work  on 
JRusnia.  by  Mackenzie  Wallace.  A  very  clear  picture  of  life 
in  the  Russian  village  community,  the  Mir,  is  given  in  the 
first  chapter  of  Jtns?iia  lritd<r  tftc  Taars,  by  Stepniak,  pub- 
lished in  cheap  form  in  the  Harper's  Franklin  Square 
Library.  Aspects  of  English  progress  duriiig  the  past  six 
centuries  are  described  in  Work  and  "Wages,  by  Thorold 
Rogers.  Toynbee's  f/nhrxfrtal  Resolution  treats  admirably 
of  recent  changes.  Parts  of  economic  treatises  in  English 
deal  inadequately  \vith  the  subject-matter  of  this  chapter, 
as,  for  example,  the  Pi-cliininnnj  Remark*  of  John  Smart 
Mill's  Political  Ji-ono)>ii/,  and  chapter  vii  of  Hook  I  of  Mar- 
shall'.s  K-ono)iti>'n  of  Imhixtry.  (ierman  literature  is  richer 
in  works  dealing  with  the  evolution  of  economic  life,  but 
perhaps  no  brief  sketch  is  better  than  Schonberg's  \~nlks- 
icirthschaft,  which  serves  as  the  first  monograph  in  the 
Ilandbufh  d<~r  Politiitr/nw  O<-konomi<>  which  he  edited.  The 
present  author  has  derived  more  from  Schonber<jj  for  "Part  I 
for  this  work  than  from  any  other  source.  Knies  has  treated 
the  subject  admirably  in  his  work,  Polit !.*•//>  O,  konomi>> 
v»ni  geschichtlicln-n  St<ii«t/,ii/iLi<.  These  works  have  un- 
fortunately never  been  translated.  An  important  sketch  of 
economic  development  has  been  given  by  the  able  protec- 


54  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

tionist,  Frederick  List,  in  his  book  Das  Rationale  System 
der  Politiscken  Oekonomie.  Two  translations  of  this  work 
exist:  an  early  one  by  G.  A.  Matile,  which  appeared  in  the 
year  1856,  and  a  later  one  by  Sampson  S.  Lloyd,  M.  P., 
which  appeared  in  the  year  1885.  M.  de  Laveleye's  work 
on  Primitive  Property  should  be  read  by  all  who  desire  to 
familiarize  themselves  with  the  evolution  of  property,  espe- 
cially in  land.  Valuable  suggestions  for  young  countries 
like  the  United  States  are  offered. 


CHAPTER  VIII. 

A   FEW    MAIN    CAUSES    FOR    THE    EXISTENCE    OF    PRESENT 
ECONOMIC    PROBLEMS. 

Economic  Problems  not  Local. — We  have  reached 
the  highest  stage  yet  attained  of  economic  life,  and  yet  there 
were  never  so  many  economic  questions  pressing  for  solution 
as  at  present.  The  situation  of  no  nation  is  peculiar  in  this 
respect,  though  narrow  ignorance  in  each  nation  assumes 
that  discontent  in  that  particular  land  is  without  foundation. 
It  is  particularly  noticeable  that  it  is  very  general  in  mod- 
ern countries  to  ascribe  discontent  to  the  agitation  of  for- 
eigners. The  truth  is,  however,  that  the  general  features  of 
industrial  society  are  very  similar  in  all  modern  countries, 
and  it  is  in  the  nature  of  industrial  society  itself  that  we 
must  look  for  causes  for  the  existence  of  pressing  economic 
questions.  What  are  these  causes  ? 

1.  The  Industrial  Revolution. — We  must  first  notice 
the  fact  that  far-reaching  changes  in  the  socio-economic  or- 
ganism have  recently  taken  place  and  that  these  have  suc- 
ceeded one  another  with  surprising  and  unprecedented 
rapidity.  These  changes  have  been  brought  about  by  ad- 
vances in  science  and  art,  through  discoveries  and  inventions. 
So  rapid  have  been  the  changes  of  the  past  eenturv  that  it  is 
customary  to  speak  of  them  as  the  industrial  revolution. 
Space  is  so  limited  in  a  work  like  this  that  it  is  impossible  to 
dwell  long  on  the  remarkable  features  of  this  recent  develop- 
ment. Let  the  reader,  however,  call  to  mind  the  many  things  in 
our  economic  life  which  the  world  never  saw  before.  He  will, 
of  course,  think  at  once  of  the  railway  and  of  steam  navigation, 
and  of  other  applications  of  steam  to  industry.  l>ut  these  have 
brought  about  other  important  new  phenomena.  The  con- 
3* 


56  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

centration  of  large  masses  of  working-people  in  great  facto- 
ries of  which  they  own  no  part,  and  under  a  single  employer, 
such  as  we  see  daily,  is  something  new  for  skilled  mechanics  » 
not  that  nothing  of  the  kind  ever  existed  before,  but  its  ex- 
istence is  so  much  more  common  and  affects  so  many  more 
people  that  in  its  social  aspects  it  is  new.  In  the  last  century, 
and  in  previous  centuries  of  the  Middle  Ages,  artisans  owned 
the  tools  which  they  used,  and  after  they  had  fully  mastered 
their  trades  usually  called  no  man  master,  but  worked  in  their 
own  little  shops.  Even  within  the  memory  of  the  author, 
still  comparatively  a  young  man,  this  condition  of  things  has 
become  less  common.  The  smith  under  the  spreading  tree, 
of  whom  Longfellow  sang,  is  disappearing.  He  has  left  the 
cross-roads  iji  the  little  village  and  now  works  in  a  machine- 
shop.  His  friends,  the  carpenter  and  the  shoemaker,  have  ac- 
companied him.  A  few  artisans  may  stay  to  do  repairing  and 
other  small  work,  but  the  cheaper  processes  of  vast  establish- 
ments have  rendered  this  migration  inevitable  for  the  many. 
Only  the  few  among  artisans  can  live  in  the  old  style.  This  can 
be  sei-n  in  the  immediate  neighborhood  of  the  meeting  place 
of  the  Chautauqua  Assembly  in  Chautauqua  County,  in  New 
York  State,  as  well  as  elsewhere.  Looking  across  Chautau- 
qua Lake  one  sees  Maysville;  a  few  miles  to  the  west  is  West- 
field;  a  few  miles  north-east  of  Westfield  is  Fredonia,  and 
there  are  many  other  small  places  within  a  radius  of  fifteen 
or  twenty  miles  of  which  very  few  have  kept  pace  in  their 
growth  with  the  growth  of  population  in  the  United  States, 
Jamestown,  at  the  foot  of  the  lake,  being  a  notable  exception. 
Articles  formerly  made  in  these  small  villages  are  now  manu- 
factured  in  Buffalo,  Cleveland,  and  other  great  cities.  Houses 
are  constructed  in  Buffalo  in  large  establishments,  and  they 
are  sent  to  small  places  where  it  is  onlv  necessary  to  put 
them  together.  Merchants  have  also  been  obliged  to  leave 
the  villages  where  they  were  owners  of  independent  estab- 
lishments to  seek  employment  in  immense  city  retail  and 
wholesale  shops,  because  the  railroad  has  carried  their  cus- 
tomers away  from  them.  The  amount  of  production  in- 


MAIN  CA  USES  OF  PRESENT  ECONOMIC  PROBLEMS.   57 

creases  continually,  but  the  number  of  separate  establish- 
ments where  production  is  carried  on  decreases  uninterrupt- 
edly. Milling  serves  as  a  good  illustration.  "  The  completion 
of  the  great  mills  has  caused  the  abandonment  and  decay  of 
hundreds  of  the  picturesque,  old-fashioned  neighborhood 
mills.  In  1870,  according  to  the  census  of  that  year,  there 
were  in  the  entire  country  22,573  grist  mills,  58,448  hands, 
representing  $151,500,000  of  capital,  and  making  a  product 
worth  $444,900,000.  In  1880  the  number  of  establishments 
was  24,338,  the  number  of  hands  58,407,  the  capital  invested 
8177,300,000,  and  the  value  of  the  product  was  §505,100,000 
(the  price  of  flour  had  declined  ten  per  cent,  in  this  decade). 
The  increase  shown  in  the  number  of  establishments  ...  is 
more  apparent  than  real,  the  great  bulk  of  the  Hour  having 
been  made  in  a  decidedly  smaller  number  of  mills  in  1880 
than  in  1870.  Since  18SO  the  blighting  effect  of  the  great 
merchant  mills  upon  the  small  establishments  has  become 
visible  to  every  one.  According  to  the  J///A  ;•'.-.•  JHwtory 
for  1884,  .  .  .  there  were  at  that  time  some  22,940  mills  in 
the  country,  a  decline  of  IjiiH  from  the  census  figures  of 
isso.  .  .  .  From  18S4  to  isstj  .  .  .  the  number  of  milling 
establishments  h;is  declined  to  10,*">t'>,  ...  a  loss  in  two 
years  of  more  than  twenty-six  per  cent."  *  The  number  of 
mills  in  the  South  has  declined  more  rapidly  than  elsewhere. 
In  isso,  in  North  Carolina,  1,:>13  mills  employed  only  1,844 
men,  but  in  the  same  State  there  were  only  t>:52  mills  in  ISStJ. 
It  is  said  that  the  number  of  mills  in  the  couiitrv  is  destined 
to  become  very  much  smaller  still.  Readers  can  readily 
gather  from  census  and  trade  reports  manv  similar  illustra- 
tions of  this  concentration  of  business,  which  is  one  of  the 
main  causes  of  the  existence  of  present  economic  problems. 
Self-employment  or  the  employment  of  others  becomes  con- 
stantly more  difliciilt,  and  the  number  who  succeed  in  escaping 
the  condition  of  employes  is  relatively  diminishing  with  the 
progress  of  industry.  A  few  escape  from  the  ranks  to  lie- 
come  self-made  men,  as  we  say;  that  is,  great  and  wealthy 
*  Albert  .<ha\v.  in  7A>  Ch<tnt,iuqn<Hi  for  <i(.'UiI«T.  1SS7. 


58  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

employers  of  hundreds  and  thousands  of  workingmen  ;  but 
they  are  the  exceptions,  and  must  be,  so  long  as  present  indus- 
trial movements  continue.  Thrift,  frugality,  and  temperance 
of  the  masses  cannot  alter  this  in  the  slightest  degree.  One 
who  excels  may  rise  to  industrial  power,  but  his  superiority 
would  cease  should  others  emulate  his  qualities.  This  fact, 
which  is  as  simple  as  multiplication  and  division,  is  becoming 
very  generally  recognized,  and  produces  a  wide-spread  rest- 
lessness and  uneasiness.  Many  perceive  that  they  can  never 
escape  from  the  lot  of  workingmen,  and  that  the  only  way  to 
improve  their  condition  is  to  elevate  their  entire  class.  The 
solidarity  of  all  interests  is  felt  as  never  before. 

Corporations. — The  study  of  corporations  reveals  an- 
other aspect  of  the  industrial  revolution.  They  now  control 
a  large  proportion  of  the  wealth  of  the  world  and  count  their 
employes  by  the  million;  yet  in  1776  Adam  Smith  gravely 
argues,  in  his  Wealth,  of  Nations,  that  as  a  rule  corporations 
cannot  succeed,  and  at  that  time  there  were  few  examples  of 
successful  corporations.  The  writer  does  not  remember  that 
he  mentions  one  example  of  a  successful  manufacturing  cor- 
poration, and  the  number  of  such  corporations  was  certainly 
very  few.  If  the  reader  will,  however,  take  the  trouble  to 
look  through  the  columns  of  any  paper  devoted  chiefly  to 
manufacturing  interests  he  will  probably  find  that  the  names 
of  more  than  half  the  establishments  mentioned  show  clearly 
that  they  arc  corporate  concerns. 

But  another  step  has  been  taken  in  the  evolution  of  in- 
dustry which  tends  to  minimize  the  individual  still  further, 
and  to  socialize  production  more  than  was  even  dreamed  of 
bv  our  forefathers.  As  corporations  are  combinations  of  in- 
dividuals we  n mv  have  trusts,  which  are  combinations  of  cor- 
porations, and  a  great  part  of  many  industries  is  now  car- 
ried on  under  one  general  management. 

Banks.— The  increase  in  the  number  of  banks  has  al- 
ready been  mentioned,  and  their  existence  in  every  town  in 
the  civilized  world  is  another  evidence  of  the  industrial 
revolution.  Business  could  not  to-day  be  carried  on  without 


MAIN  CA  USES  OF  PRESENT  ECONOMIC  PROBLEMS.        59 

banks,  and  the  failure  of  a  few  large  banks  at  financial  cen- 
ters like  New  York  and  Boston  is  sufficient  to  cause  a  wide- 
spread panic,  touching  even  London,  Berlin,  and  Paris.  But 
one  hundred  and  fifty  years  ago  there  was  not  an  institution 
in  the  United  States  performing  the  functions  of  a  modern 
bank,  and  the  oldest  existing  American  bank,  the  Bank  of 
North  America,  in  Philadelphia,  was  not  founded  until  1781. 

Commerce,  domestic  and  international,  means  a  different 
thing  from  what  it  did  a  hundred  years  ago,  when  Adam 
Smith  assured  English  farmers  that  even  with  free  trade 
they  need  never  fear  any  considerable  importation  of  wheat 
and  beef  from  Ireland,  on  account  of  the  expensiveness  of 
transportation!  Commerce  on  the  one  hand  ministers  to  the 
necessities  of  life,  and  not  chiefly  to  luxury,  as  formerly, 
and  on  the  other  hand  it  intensities  international  competition. 
The  question  of  the  tariff  assumes  a  new  importance. 

Free  importation  of  foreign  laborers  is  something  of  un- 
precedented magnitude  on  account  of  cheap  transportation. 
The  labor  market  comes  to  embrace  the  world.  This  also 
modifies  the  tariff  question. 

Problem  of  the  "Working  Day. — Now  this  industrial 
revolution  is,  on  the  whole,  in  the  direction  of  progress,  but 
it  has  come  so  suddenly  that  it  has  forced  problems  on  us 
which  we  have  not  as  yet  solved.  Take  the  question  of  the 
eight  hour  day.  It  has  become  a  live  question  because,  on 
the  one  hand,  machinery  enables  us  to  produce  more  in  eight 
hours  than  formerly  in  three  times  eight  hours;  on  the  other, 
because  those  engaged  in  threat  factories  and  other  manu- 
factories find  modern  production  more  wearing  on  the  nerv- 
ous system,  thus  predisposing  them  to  the  use  of  intoxicating 
stimulants,  and  more  deadening  to  the  intellect,  ami  thus 
requiring  more  leisure  for  recreation  :ind  the  development  of 
the  higher  faculties.  It  can  hardly  be  disputed  that  if  all 
able-bodied  members  of  society  worked  either  with  body  or 
mind, that  is  to  say,  rendered  themselves  useful, enough  could 
be  produced  in  eight  hours,  or  even  less,  to  sati>fy  every  legiti- 
mate want  of  everv  human  bein<_f.  These  facts  must  not  be 


60  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

taken  as  a  conclusive  argument  in  favor  of  the  eight-hour 
day  for  those  engaged  in  manufactures — manifestly  the  case 
of  agricultural  laborers  is  different  in  some  particulars — but 
they  do  show  what  has  made  the  eight-hour  day  a  live 
question. 

Resistance  to  Improvements. — These  changes  in  pro- 
duction and  in  distribution,  in  domestic  and  international 
commerce,  have  been  followed  by  an  almost  infinite  variety 
of  new  phenomena,  some  of  them  welcome,  others  unpleas- 
ant, distressing,  and  dangerous  to  the  social  structure.  These 
changes  mean  displacement  of  labor  and  capital,  and 
every  extensive  displacement  of  labor  and  capital  is  pain- 
ful for  the  time  being.  If  it  be  said  that  "  in  the  long  run  " 
they  are  beneficial  to  all,  it  may  be  replied  that  men's 
lives  do  not  last  for  "the  long  run."  "The  short  run,  if 
the  expression  may  be  used,  is  often  quite  long  enough  to 
make  the  difference  between  a  happy  and  a  miserable  life."* 
Every  new  invention  which  renders  former  skill  of  no  ac- 
count is  extremely  painful  to  skilled  laborers  and  their 
families,  who  see  their  industrial  and  social  station  thereby 
lowered.  Improvements  have  often  been  foolishly  resisted, 
but  artisans  have  in  this  respect  shown  only  common  human 
traits.  Lawyers  have  as  strenuously,  and  far  more  successful- 
ly, resisted  reforms  which  would  have  diminished  their  fees. 

Sudden  Riches. — The  abuse  of  freedom  on  the  part  of 
those  at  the  same  time  strong  and  unscrupulous  has  been  a 
fruitful  cause  of  trouble.  There  may  have  been  an  unusually 
numerous  class  of  those  at  the  same  time  strong  and  un- 
scrupulous, because  manifold  changes  have  suddenly  en- 
riched poor  people,  and  often  by  mere  chance,  as  in  the  case 
of  owners  of  oil  lands,  natural  gas  lands,  and  farm  lands 
where  cities  have  sprung  up.  Now  it  is  a  great  strain  to  a 
man's  nature  to  subject  him  to  the  temptations  involved  in 
new  and  sudden  acquisitions  of  material  power,  and  inferior 
natures  have  not  been  able  to  endure  it.  Parvenus  have 
given  a  demoralizing  example  of  soulless,  materialistic  lux- 
*  <':imiai»'.s  Hlmifiitu  >j  I'ulili'-iil  Kuitoin>j.  I'itrt  II.  j;  1  ;"i,  p.  9-. 


MAIN  CA  USES  OF  PRESENT  ECONOMIC  PROBLEMS.    61 

ury,  and  other  inferior  natures  have  tried  to  ape  them  in 
their  extravagance.  Thus  has  arisen  a  race  in  display  which 
has  promoted  speculation,  fraud,  and  embezzlement.  Proba- 
bly also  the  hardest  employers,  who  have  most  aggravated 
social  troubles,  are  to  be  found  among  the  new- rich. 

Confusion  of  Private  and  Public  Business. — The 
improper  extension  of  private  activity  to  public  spheres, 
as  in  the  case  of  gas  supply,  electrical  service  of  all  kinds, 
and  railways,  may  be  mentioned  as  a  fruitful  cause  of  prob- 
lems. Vast  increase  of  wealth  stimulated  egoism,  and  as 
every  one  was  bent  on  his  own  concerns  few  stopped  to  in- 
quire into  the  proper  lines  to  be  drawn  between  public  and 
private  enterprises.  Mistakes  easily  made  are  with  great 
difficulty  remedied.  The  railway  and  the  steamship  have 
brought  us  many  good  things,  and  the  railway  advocate  who 
recently  entitled  an  article,  "  Are  Railways  Public  Ene- 
mies ?"  asked  an  absurd  question.  Nevertheless,  they  have 
brought  much  evil  with  the  good,  and  are  the  c:uise  of  per- 
plexing problems.  The  domination  of  private  corporations 
and  the  seizure  by  them  of  public  property  without  just 
compensation  are  a  further  cause  of  uneasiness  and  anxiety. 

For  the  relations  which  exist  in  modern  society,  for  all 
these  new  and  heretofore  unknown  conditions,  we  require 
new  laws,  new  institutions,  and  new  ideals  in  legislation. 

2.  The  New  Importance  of  Capital. — It  may  be 
well  enough  on  account  of  its  special  significance  to  single 
out  one  recent  development  for  more  particular  treatment, 
and  that  is  the  new  force  indicated  by  the  word  capital,  and 
brought  out  still  more  clearlv  in  the  expression  "capitalistic 
production."  It  is  this  new  force  which  has  created  modern 
socialism.  It  is  not  meant  that  capital  never  existed  belore. 
It  manifestly  always  existed,  because  capital  Dimply  means 
an  accumulation  of  products  of  past  toil  which  may  be  u-ed 
for  purposes  of  further  production.  What  is  meant  is  that 
as  a  separate,  distinct,  and  mighty  force  capital  as  it  exists 
to-day  is  something  new.  Capital  is  the  point  about  which 
social  discussion  largely  turns,  and  the  phrase  "  capital  and 


62  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

labor"  is,  in  some  connection  or  another,  continually  on 
every  body's  lips.  Yet  it  is  said  that  the  rallying  cries 
for  and  against  capital  would  not  have  been  even  under- 
stood in  the  Middle  Ages.  It  may  be  asked,  "How  can 
this  be  ?  "  The  truth  is  that  no  one  attacks  capital  in  itself, 
and  no  sensible  man  deems  it  necessary  to  defend  the  ex- 
istence of  capital  in  itself.  The  socialist  who  leads  a 
crusade  against  "  capital "  is  as  much  in  favor  of  the  use 
of  capital  as  any  one  else.  Socialists  wish  to  extend  the  use 
of  capital.  But  capital,  accumulations  of  past  toil  in  the 
shape  of  food,  shelter,  clothing,  and  particularly  tools  and 
implements,  like  railways,  locomotives,  steam-engines  of  all 
kinds,  telegraph  and  electric  plant,  and  the  like,  while  it  in- 
creases the  production  of  goods  marvelously,  has  become  a 
disintegrating  force.  Differentiation  has  accompanied  in- 
dustrial development.  It  is  the  present  capitalistic  mode  of 
production  which  is  called  in  question.  The  capital,  that  is, 
the  tools,  are  owned  by  one  class  and  the  labor  is  furnished 
by  another  class.  Now,  as  we  have  two  distinct  classes  in 
production,  disputes  over  the  division  of  goods  produced  by 
those  two  classes  are  certain  to  arise.  The  finished  product 
being  given,  the  more  one  class  receives  the  less  remains  for 
the  other,  and  it  is  mere  sophistry  to  claim  that  the  interests 
of  the  two  can  be  perfectly  identical.  The  diversity  of  in- 
terests which  manifests  itself  in  very  real  industrial  conflicts 
is  an  inevitable  part  of  that  system  which  assigns  labor  to 
one  class  and  capital  to  another.  It  has  already  been  re- 
marked that  in  earlier  times  this  separation  did  not  exist. 
It  was  obviated  by  a  multitude  of  contrivances.  Slavery 
was  one,  for  that  united  in  the  same  hands  labor  and  capital. 
Serfdom  was  another  and  closely  allied  one.  Craft-guilds 
were  another  mode.  Manufactures  were  carried  on  in  the 
Middle  Ages  by  labor  and  capital  or^ani/ed  together  in  these 
guilds,  and  during  their  best  period  the  results  were  satis- 
factory, and  harmony  prevailed  in  the  main.  There  was  a 
gradual  progression  from  apprentice  to  journeyman  and 
from  journeyman  to  master  owning  his  tools,  and  all  grades 


MAIN  CA  USES  OF  PRESENT  ECONOMIC  PROBLEMS.        63 

worked  together.  The  apprentice  lived  with,  the  master,  and 
frequently,  after  passing  through  the  grade  of  journeyman 
and  presenting  his  masterpiece,  married  the  daughter  of  the 
master.  The  very  word  manufacturer  a  hundred  years  ago 
meant  one  who  toiled  with  his  own  hands.  Adam  Smith 
speaks  about  growing  rich  by  employing  a  multitude  of 
manufacturers,  by  which  he  means  simply  skilled  artisans. 
Custom  has  been  a  powerful  factor  in  maintaining  industrial 
peace  in  the  previous  centuries  of  the  world's  history.  Cus- 
tom regulated  prices  and  wages,  and  was  often  so  fixed  and 
settled  that  it  was  taken  as  something  almost  as  much  a 
matter  of  course  as  the  laws  of  the  physical  universe. 

Plans  for  Uniting  Labor  and  Capital. — We  have  al- 
ready seen  that  nature  was  the  dominant  factor  in  the  earli- 
est economic  stages.  Labor  is  a  minor  factor  ;  and  capital, 
except  in  the  most  rudimentary  form,  does  not  exist.  As  in- 
dustrial civilization  gradually  develops,  the  power  of  man  as 
seen  in  labor  gradually  gains  a  greater  and  greater  ascend- 
ency over  wild  nature.  Labor  is  assisted  by  tools  and  im- 
plements always  connected  with  it,  and  scarcely  thought  of 
as  existing  apart  from  labor.  Labor  is  the  pivotal  point  of 
production.  Time  passes.  Tools  and  implements  are 
evolved  which  are  a  thousand-fold  more  efficient  than  those 
of  older  centuries,  but  a  thousand  times  more  costly.  What 
formerly  required  a  year  is  now  done  in  a  day  ;  but  many 
must  work  together,  and  great  wealth  must  own  the  tools. 
Those  helps  in  production  which  are  represented  by  capital 
are  no  longer  mere  appendages  to  labor  and  subordinate  to 
labor.  They  become  dominant,  and  when  they  become  most 
powerful  they  are  owned  by  a  distinct  class,  the  capitalists. 
Capital  thus  is  the  pivotal  point  of  modern  economic  life, 
and  capital  causes  trouble  because  it  is  a  separate  force.  It 
pulls  apart  men  and  divides  them  into  sharply  pronounced 
classes.  This  explains  the  socialistic  definition  of  capital. 
"A  negro,"  says  Carl  Marx,  the  «;reat  (Jerman  leader  of  so- 
cialism— "a  negro  is  a  negro.  In  certain  relations  he  becomes 
a  slave.  A  cotton-spinning  machine  is  a  machine  for  spin- 


64.  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

ning  cotton.  It  becomes  capital  only  in  certain  relations 
Capital  is  a  social  relation  existing  in  the  processes  of  pro- 
ductio"n.  It  is  an  historical  relation.  The  means  of  produc- 
tion are  not  capital  when  they  are  the  property  of  the 
immediate  producer.  They  become  capital  only  under  con- 
ditions in  which  they  serve  at  the  same  time  as  the  means 
of  exploiting  and  ruling  the  laborer."  That  is  to  say,  Marx 
limits  capital  to  economic  goods  in  the  hands  of  employers 
at  a  time  when  these  goods,  accumulated  by  past  toil,  have 
assumed  an  importance  never  before  known  in  the  world's 
history.  Questions  of  production  on  a  large  scale  and  on  a 
small  scale  turn  on  relative  efficiency  of  capital  under  vari- 
ous forms  of  organization.  The  great  problem  of  the  future 
organization  of  industrial  forces  centers  in  questions  con- 
nected with  capital.  The  old  methods  of  production  have 
gone  never  to  return.  How  shall  the  benefits  of  the  old  be 
united  with  the  advantages  of  the  new  ?  There  is  a  wide- 
spread belief  that  labor  and  capital  must  again  be  united, 
but  differences  arise  when  the  question  of  method  is  raised. 
Many  think  the  problem  can  be  solved  along  existing  lines 
by  savings  banks,  building  associations,  and  the  acquisition 
by  laborers  of  shares  in  the  corporations  which  employ  them. 
Others  hold  that  special  efforts  should  be  made  to  induce 
laborers  to  put  their  small  savings  together  and  to  acquire 
capital  to  employ  themselves.  Let  us  say  a  thousand  dollars 
capital  is  required  for  each  laborer  in  a  certain  kind  of  busi- 
ness, then  a  thousand  laborers  would  require  one  million  of 
dollars;  a  very  large  sum,  but  when  it  is  divided  into  a  thou- 
sand parts  it  by  no  means  appears  hopeless.  This  is  what  is 
meant  by  co-operation  as  ordinarily  understood:  the  supply 
of  capital  by  laborers  who  are  to  manage  their  own  business, 
or,  at  least,  to  select  their  own  managers.  Others,  who  do 
not  believe  that  the  obstacles  in  the  way  of  self-management 
can  be  overcome,  look  to  a  voluntary  sharing  of  profits  by 
employers  with  their  employes;  a  method  which  has  been 
successfully  adopted  by  many  capitalists  recently,  and  which 
thus  to  an  extent  unites  the  interests  of  labor  and  capital. 


MA  IX  CA  USES  OF  PRESENT  ECONOMIC  PR OBLEMS.    65 

Still  other  reformers,  who  do  not  believe  that  voluntary 
agreement  can  ever  bring  about  joint  ownership  of  capital, 
look  to  the  power  of  government  to  establish  this.  These 
are  the  socialists.  Various  reforms  will  be  discussed  at 
length  hereafter.  It  will  be  seen,  however,  that  all  the  proj- 
ects mentioned  turn  upon  discussions  of  capital,  and  that 
all  those  who  advocate  these  projects  want  to  make  the  la- 
borer at  the  same  time  a  capitalist.  It  is  trusted  that  this 
discussion  has  made  clear  what  is  meant  when  it  is  said  that 
capital  has  become  a  new  force. 

3.  Possibility   of  Improvement.  —  Economic  science 
has  shown  us  the  possibility  of  better  things  for  the  masses, 
and  we  cannot  rest  quietly  with  things  as  they  are.    It  is  im- 
possible.    Our  responsibility  for  conditions  which  have  been 
mentioned   is  something  we  feel  in  spite  of  ourselves.     We 
may  deny  it ;  we  may  ask  indignantly,  "Am  I  my  brother's 
keeper?"     But  down  deep  in  our  hearts  and  consciences  we 
feel   this  responsibility,  and  even  while  denying  it  we  show 
that   we  feel  it  by  our  acts  and  by  our  conversation.     As 
Schonberg  well  says:  "Our  economic  life  is  a  social  struct- 
ure for  which  men  are  responsible,  and  its  improvement,  its 
formation  in  the  manner  best  for  the  well-being  of  the  whole 
body  of  society,  is  one  of  the  weightiest  problems  of  nations. 
This   task   becomes  more  difficult   the   higher  the  economic 
stage  of  development  and  the  greater  the  nation.    It  becomes 
so  difficult  in  time  that  a  special  science — political  economy 
— was  developed  to  aid  in  its  solution.'' 

4.  Higher  Ethical    Standards.  —  A  fourth  cause  of 
social  problems    is  clearly   related    to    the  third.      It   is    the 
progress  of   religion,   in  particular   of  Christianity,  and   the 
development  of  humane   sentiments  in   all   classes.     Things 
trouble  us  now  which  one  hundred  years  ago  we  would  have 
taken    a^   a   mere   matter  of  course.     The  contradiction  be- 
tween things  as  they  are  and  our  social  ideal  is  painful. 

Some  passages  from  Sir  Henry  Maine's  Villin/e  Communi- 
ties will  make  us  understand  the  significance  of  the  progress 
of  Christianity.  Sir  Henry  Maine  seeks  an  explanation  for 


68  AN  INTRODUCTION  TO  POLITICAL  KCOSOMY. 

the  fact  that  what  he  regards  as  economic  principles  are  not 
universally  received.  By  economic  principles  he  means  self- 
seeking  in  economic  matters:  asking  the  highest  price  ob- 
tainahle  for  salable  commodities  and  purchasing  commodi- 
ties at  the  lowest  price,  or  buying  in  the  cheapest  and  selling 
in  the  dearest  market.  Sir  Henry  Maine  evidently  approves 
of  self-interest  as  a  supreme  factor,  but  he  notices  that  a 
moral  feeling  common  in  mankind  rebels  against  what  he 
styles  and  what  are  erroneously  supposed  to  be  economic 
principles.  The  explanation  of  the  reluctance  with  which 
self-interest  as  supreme  guide  is  accepted  is  historical. 
The  "  market "  was  originally  neutral  ground  lying  where 
"the  dominion  of  two  or  three  villages  converged."  These 
were  the  village  communities  in  which  custom  r.-ither  than 
competition  regulated  prices,  but  in  the  market  all  went  as 
strangers,  and  for  the  market  the  idea  of  "sharp  practice 
and  hard  bargaining  "  obtained.  "  Here,  it  seems  to  me," 
says  Sir  Henry  Maine,  "  the  notion  of  a  man's  right  to  get  the 
best  price  for  his  wares  took  its  rise,  and  hence  it  spread 
over  the  world."  Then,  after  further  comments  on  the  growth 
of  "market  law,"  he  illustrates  as  follows  the  survival  of 
older  ideals  :  "  The  repeal  of  the  usury  laws  has  made  it  law- 
ful to  take  any  rate  of  interest  for  money,  yet  the  taking  of 
usurious  interest  is  not  thought  to  be  respectable,  and  our 
courts  of  equity  have  evidently  great  difficulty  in  bringing 
themselves  to  a  complete  recognition  of  the  new  principle. 
Bearing  this  example  in  mind  you  may  not  think  it  an  idle 
question  if  I  ask,  What  is  the  real  origin  of  the  feeling  that 
it  is  not  creditable  to  drive  a  hard  bargain  with  a  near  rela- 
tive or  friend?  It  can  hardly  be  said  that  there  is  any  rule 
of  morality  to  forbid  it.  The  feeling  seems  to  me  to  bear 
the  traces  of  the  old  notion  that  men  united  in  natural  groups 
do  not  deal  with  one  another  on  principles  of  trade.  .  .  . 
The  general  proposition  which  is  the  basis  of  political  econ- 
omy made  its  first  approach  to  truth  under  the  only  circum- 
stances which  admitted  of  men  meeting  at  arm's  length,  not 
as  members  of  the  same  group,  but  as  strangers.  ...  If  the 


MAIN  CA  USES  OF  PRESENT  ECONOMIC  PROBLEMS.        8? 

notion  of  getting  the  best  price  for  movable  property  has 
only  crept  to  reception  by  insensible  steps,  it  is  all  but  cer- 
tain that  the  idea  of  taking  the  highest  obtainable  rent  for 
land  is  relatively  of  very  modern  origin.  The  rent  of  land 
corresponds  to  the  price  of  goods,  but  doubtless  was  infinitely 
slower  in  conforming  to  economical  law,  since  the  impression 
of  a  brotherhood  in  the  ownership  of  land  still  survived  when 
goods  had  long  since  become  the  subject  of  individual  prop- 
erty. So  strong  is  the  presumption  against  the  existence  of 
competitive  rents  in  a  country  peopled  by  village  communi- 
ties that  it  would  require  the  very  clearest  evidence  to  con- 
vince me  that  they  were  anywhere  found  under  native  con- 
ditions of  society.  ...  It  is  notorious  that  in  England,  at 
least,  land  is  not  universally  rack-rented.*  But  where  is  it 
that  the  theoretical  right  is  not  exercised?  It  is  substan- 
tially true  that,  where  the  manorial  groups  substituted  for 
the  old  village  groups  survive,  there  are  no  rack-rents.  What 
is  sometimes  called  the  feudal  feeling  has  much  in  common 
with  the  old  feeling  of  brotherhood  which  forbade  hard  bar- 
gains."  f 

Let  us  now  endeavor  to  understand  the  significance  of 
these  qualifications. 

Political  Economy  and  Ethics. — Political  economy  is 
supposed  by  some  to  lie  the  science  of  "  sharp  practice  and 
hard  bargaining."  It  is  held  to  assume  the  existence  of 
sharp  practice  and  hard  bargaining  and  to  justify  both,  as, 
on  the  whole,  Sir  Henry  Maine  does.  Vet  we  see  that  these 
so-called  economic  principles  could  arise  only  when  men  met 
as  strangers,  and  that  even  up  to  the  present  time  they  are 
incompatible  with  the  feeling  of  brotherhood.  We  may  be 
assured  as  often  as  one  pleases  that  it  is  creditable  to  "drive 
a  hard  bargain  with  a  near  relative  or  a  friend,"  but  it  is  of 
no  avail.  There  is  within  man  an  ethical  feeling,  which  has 

*  Ruck-rout  is  t'-o  same  tliinp;  as  competitive  rent.  It  moans  simply  the 
liitrliost  rent,  which  can  be  obtained.  The  ordinary  city  rents  in  the  United 
Slates  are  rack-rents. 

f  Vll!n.~*  Com irfi nit •'•;•!,  Lecture  VI. 


68  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

grown  up  as  a  result  of  intuition  combined  with  historical 
experiences,  and  which  has  been  clarified  by  religion,  telling 
us  that  in  our  economic  life  as  well  as  elsewhere  we  must 
seek  to  promote  the  welfare  of  our  neighbor  and  brother. 
This  ethical  feeling  is  not  to  be  lightly  regarded,  for  it  is 
the  best  product  of  centuries  of  striving  of  the  best  men. 
Now  Sir  Henry  Maine  looks  to  a  disappearance  of  this  feel- 
ing of  brotherhood  for  the  triumph  of  the  "  market "  where 
only  sharp  practice  and  hard  bargaining  obtain.  It  may  be 
that  the  first  effects  of  modern  improvements  in  the  means 
of  communication  and  transportation  have  been  to  destroy 
or  rather  greatly  to  weaken  the  feeling  of  brotherhood,  and 
old  local  groups  have  doubtless  been  broken  up  and  their 
members  scattered.  It  has  become  easy  to  wander  off  to  any 
quarter  of  the  world.  But  still  further  improvements  in  the 
means  of  communication  and  transportation,  especially,  per- 
haps, the  national  and  international  postal  systems,  are  drawing 
all  parts  of  the  world  closer  together  than  ever  before,  and  in- 
stead of  a  local  group  of  brothers  to  whom  all  strangers  are 
aliens  the  fraternal  feeling  is  extending  and  embracing  all 
men.  With  an  extension  of  fraternalism  there  is  at  first  a 
great  weakening  of  the  feeling,  but  economic  bands  and  the 
progress  of  Christianity,  which  teaches  that  all  men  are  broth- 
ers, are  rapidly  strengthening  it.  An  economic  world-union 
of  brothers  is  in  the  process  of  formation,  and  this  explains 
a  large  part  of  our  anxiety  and  uneasiness  with  respect  to  so- 
cial conditions.  It  is  of  no  avail  to  say  that  business  is  ex- 
cluded from  the  domination  of  ethical  principles,  for  it  is 
precisely  in  our  economic  life  that  ethical  principles  of  any 
real  validity  must  manifest  themselves.  It  is  only  in  an  im- 
perfect condition  of  society  that  sharp  practice  and  hard  bar- 
gaining can  ever  appear  to  men  to  be  morally  right.  There 
is  a  very  general  determination  to  make  all  departments  of 
social  life  conform  to  ethical  principles,  and  this  is  what  is 
meant  by  the  phrase  used  by  the  Christian,  "The  world  is  the 
subject  of  redemption." 
Absolute  and  Relative  Deterioration  of  the 


MAIN  CA  USES  OF  PRESENT  ECONOMIC  PROBLEMS.        89 

Masses. — We  have  examined  certain  general  causes  for  the 
existence  of  socio-economic  problems.  Accompanying  each 
of  these  a  multitude  of  forces  may  be  at  work  aggravating 
or  mitigating  troubles.  A  deterioration  in  the  economic 
situation  ol  the  masses  may  be  a  cause  of  discontent  and 
agitation,  and  this  deterioration  may  be  of  two  kinds.  It 

~  •• 

may  l»e  ab-olute  or  relative.  Absolute  deterioration  means 
conditions  poorer  in  themselves  without  regard  to  the  eco- 
nomic situation  of  others  or  the  changed  requirements  of 
new  times.  Absolute  deterioration  is  the  exception,  but  still 
it  is  not  so  uncommon  as  is  generally  supposed.  Changes 
involving  displacements  of  labor  and  capital  injure  large 
numbers,  and  of  these  many  never  regain  their  old  position. 
Economic  evils  wlien  of  a  certain  magnitude  tend  to  increase 
spontaneously,  as  it  were,  and  to  aggravate  themselves. 
Children  are  not  educated,  a  lower  standard  of  life  is  taken, 
and  progress  ceases.  This  absolute  deterioration  has,  during 
the  last  fifty  years,  been  exceptional,  though  not  so  in  earlier 
ages,  and  we  have  no  warrant  for  the  hypothesis  that  in  the 
future  it  will  not  again  become  common,  unless  special  efforts 
are  made  to  prevent  it. 

Relative  Deterioration.— A  relative  deterioration  is  far 
commoner.  This  means  that  large  sections  of  the  population 
have  not  kept  pace  in  their  economic  progress  with  the  ad- 
vance of  wealth  on  the  one  hand,  on  the  other  with  the  de- 
velopment of  their  rational  wants  and  aspirations,  to  sav 
nothing  of  the  rr.iving  for  mere  luxuries  which  has  been 
stimulated  by  the  lavish  expenditures  of  the  new-rich.  We 
are  here  concerned  with  higher  demands  of  people,  and,  pro- 
vided these  take  a  right  direction,  they  are  to  be  welcomed, 
for  they  are  a  condition  of  civilization.  .Missionaries  among 
degraded  heathen  find  it  neces-ary  to  awaken  wants,  even  if 
for  mere  ornament-,  in  order  to  incite  the  savages  to  action, 
and  this  is  the  first  step  in  progress.  Kvcry  succeeding  step 
in  civilization  is  accompanied  by  new  wants,  and  unless  these 
are  awakened  civilization  comes  to  a  stand-still,  as  seen 
among  portions  of  the  Canadian  French  in  the  Province  of 


70  Atf  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Quebec.  Canada.  Professor  Drummond  speaks  of  the  few 
wants  of  the  Africans  as  an  obstacle  in  the  way  of  the  de- 
velopment of  their  country. 

"Wants  and  Civilization. — This  has  a  bearing  on  many 
present  problems  in  the  United  States.  We  do  not  want 
among  us  a  people  with  few  wants  and  no  aspirations.  They 
can  only  serve  as  a  drag  on  the  progress  of  American  civili- 
zation. At  the  same  time  not  all  wants  are  legitimate  or 
desirable.  Wants  are  graded,  and  as  man  advances  material 
wants  ought  to  give  way  to  higher  social,  mental,  and  spirit- 
ual wants.  Materialism  indicates  a  dangerous  tendency  of 
wants  in  the  United  States  to-day.  What  is  needed  is  not 
to  try  to  check  the  growth  of  wants,  but  rather  to  direct  the 
current  into  proper  channels. 


CHAPTER  IX. 

SOME  GENERAL  FEATURES  OF  THK  ECONOMY  OF  THE  MODERN 

NATION. 

Three  characteristic  features  of  modern  economic  life  arc 
to  be  found  in  the  relations  which  it  bears  (1)  to  freedom, 
(2)  to  ethics,  and  (3)  to  the  State.  These  will  be  examined 
briefly  in  the  order  named. 

1.  Economic  Freedom. — Economic  freedom  must  be 
regarded  as  merely  relative.  It  has  been  absolute  only  in 
that  condition  of  anarchy  in  which  savages  have  lived  previ- 
ous to  organized  government.  A  re-introduction  of  absolute 
liberty  would  mean  a  return  to  primitive  anarchy,  and  any 
idea  of  realizing  it  is  a  mere  Utopia.  This  freedom  is  rela- 
tive. Legal  restrictions  are  exceptional;  in  particular,  such 
legal  restrictions  as  are  felt  to  be  burdensome,  because,  as 
Sir  Henry  Maine  lias  shown,  obedience  to  law  is  in  civilized 
nations  unconscious.  Law  has  to  such  an  extent  formed  us 
that  we  for  the  most  part  spontaneously  obey  it.  We  can- 
not move  without  law.  It  is  a  condition  of  the  existence  of 
modern  civilization.  Law  makes  it  possible  for  us  to  live 
our  lives  in  security.  Do  we  own  a  house  ?  That  implies 
law.  Do  we  go  to  business  every  day  in  a  street-car?  The 
construction  of  street-car  lines  is  always  made  possible  by 
laws.  Do  we  read  telegrams?  We  can  do  so  only  because 
law  has  made  possible  the  existence  of  telegraph  companies. 
Do  we  send  and  receive  letters?  It  is  through  an  institu- 
tion, the  creature  of  law,  owned  and  operated  by  the  govern- 
ment. l>ut,  after  all,  this  is  n<>t  felt  to  be  a  limitation  of 
freedom.  It  is  only  in  this  state  that  freedom  can  be  real- 
ized, as  has  been  shown  by  a  distinguished  American  writer, 
l)i.  Mulford,  in  his  work,  Tlx,  X<iti<>/i.  Yet  ne.ulv  all  l:\us 


72  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

carry  with  them  a  " Thou  shall "  and  a  "Thou  shall  not." 
Restrictions  which  do  exist  are  now  general,  and  in  the  inter- 
est of  the  whole  people,  not  of  a  few  privileged  individuals 
or  classes.  Their  aim  as  a  whole  is  to  prevent  an  abuse  of 
liberty  ;  to  keep  the  strong  and  cunning  from  injuring  others, 
thus  to  increase  real  liberty. 

Restrictive  Laws  May  Increase  Real  Freedom.— 
The  way  in  which  restrictive  laws  often  increase  real  freedom 
may  be  illustrated  by  an  occurrence  in  Baltimore.  The  barbers 
of  that  city  wished  to  close  the  barber-shops  on  Sunday.  One 
barber  could  not  close  his  shop  unless  all  did  the  same,  as  he 
would  be  likely  to  lose  regular  customers.  A  voluntary  agree- 
ment was  not  felt  to  be  sufficient  security  for  Sunday  observ- 
ance. The  barbers  accordingly  raised  several  hundred  dol- 
lars to  secure  the  passage  of  an  ordinance  compelling  them  to 
close  their  own  shops.  They  were  successful,  and  thus  the 
law  enabled  them  to  carry  out  their  own  desires.  They  were 
enabled  to  do  what  they  pleased,  and  thus  restrictive  legis- 
lation increased  freedom.  The  writer  has  frequently  heard 
a  photographer  in  New  York  who  did  business  on  Sunday 
lament  grievously  the  necessity  for  Sunday  labor,  and  express 
a  willingness  to  contribute  one  hundred  dollars  to  secure  the 
passage  of  a  law  closing  all  photograph  galleries.  It  is  thus 
seen  that  restrictions  to  liberty  arise  outside  of  the  law,  and 
that  the  law  may  increase  liberty  b};  helping  us  to  remove 
these  rest  fictions. 

Increase  in  Government  Regulations. — We  speak 
continually  of  the  increase  of  freedom,  and  imagine  often  that 
we  have  been  movingin  the  direct  ion  of  no-government.  It 
is  probable,  however,  that  laws  were  never  more  numerous 
nor  more  far-reaching  in  their  consequences  than  to-day. 
Let  us  take  the  law  under  which  national  bunks  are  to-day 
organized.  We  coupler  that  law  as  an  excellent  one,  and 
never  speak  of  it  as  an  infringement,  on  liberty.  Yet  every 
step  in  the  life  of  a  national  banking  establishment  is  taken  ac- 
cording to  law.  The  amount  of  capital  is  prescribed,  the  man- 
ner of  investment  of  a  part  of  the  capital  is  rigidlv  prescribed, 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     73 

and  the  investment  of  the  whole  of  it  is  limited,  the  size  of  each 
share  is  prescribed,  the  amount  which  must  be  paid  in  is  pre- 
scribed, the  officers  to  be  elected  are  prescribed,  the  voting 
power  of  shares  is  prescribed.  After  the  bank  comes  into 
being  it  is  ordered  five  times  a  year,  and  four  of  these  times 
without  previous  warning,  to  publish  a  minute  statement  of 
its  condition  in  the  local  press,  and  examiners  may  without 
warning  be  sent  from  Washington  to  inspect  its  books.  It 
is  necessary  to  examine  into  these  phenomena.  It  may  be 
said  that  the  laws  are  now  neither  less  numerous  nor  less 
powerful  than  formerly,  but  wiser.  They  construct  a  frame- 
work within  which  we  willingly  move. 

Laws  no  longer  Special  but  General. — Laws  formerly 
were  often  special  and  not  general,  and  aroused  animosity 
because  they  did  not  bear  on  all  alike.  The  laws  formerly 
authorized  A.  to  do  what  B.  was  expressly  forbidden  to  do. 
A.  might  follow  the  trade  of  a  carpenter,  while  B.  was  ex- 
cluded. C.  might  establish  a  bank,  but  D.  would  be  thrown 
into  prison  if  he  attempted  to  do  the  same.  Laws  of  the 
last  century  and  previous  centuries  were  individual  in  their 
application  and  became  oppressive.  Banks  serve  again  as 
an  illustration.  Early  in  this  century,  in  all  of  the  States  of 
the  American  Union,  it  was  necessary  for  any  body  of  men 
desiring  to  engage  in  the  banking  business  to  secure  .a  spe- 
cial legislative  charter.  Xow  any  body  of  men  who  comply 
with  the  laws  for  the  formation  of  banking  institutions  mav 
organize  a  bank.  The  restrictions  in  the  laws  arc  of  a  sever- 
ity that  would  not  have  been  tolerated  fifty  years  ago,  but 
they  bear  on  all  alike;  they  are  framed  in  the  interest  of  the 
people  as  a  whole,  and  are  not  felt  to  be  oppressive.  Laws 
have  not  been  abolished,  but  exclusive  privileges  have  been, 
and  this  is  the  peculiar  triumph  of  the  nineteenth  centnrv 
in  legislation.  We  have  established  the  principle  that  legis- 
lation must  be  general  and  not  special. 

"What  is  Freedom? — It  is  well  in  this  connection  tore- 
fleet  on  the  real  nature  of  freedom,  the  absence  of  restraint 
on  our  actions.  Freedom  is  negative.  It  may  be  compared 


74  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

to  an  empty  vessel.  Its  value  depends  upon  what  we  put  in 
it.  Absence  of  restraint  in  itself  can  hardly  be  called  a  good 
in  itself.  It  may  be  a  curse  or  a  blessing.  It  gives  oppor- 
tunity for  the  development  of  our  faculties  to  a  full  and 
harmonious  whole;  yet,  if  we  are  not  ripe  for  it,  it  may  in- 
volve our  degradation.  Children  are  not  fit  for  it,  because 
under  the  controlling  influence  of  a  higher  authority  their 
development  can  better  be  secured.  Not  all  nations  are  fit 
for  it.  The  Declaration  of  Independence  was  the  assertion 
before  the  world  that  we  were  fit  for  free  and  uncontrolled 
self-development.  American  democracy  means  the  ripeness 
of  Americans  for  political  freedom. 

Economic  freedom  manifests  itself  in  five  different  ways: 
a.)  Freedom  of  labor  in  three  respects:  1.  Freedom  of 
person,  as  seen  in  the  abolition  of  bondage  and  the  establish- 
ment of  the  principle  of  legal  equality.  This  freedom  of 
the  person  has  become  universal  in  the  civilized  world  only 
within  the  present  generation.  2.  Freedom  of  movement  and 
acquisition.  This  means  the  right  to  settle  where  you  please 
and  to  follow  any  pursuit  you  please,  so  far  as  any  special 
and  individual  legal  restrictions  are  concerned.  Legal  re- 
strictions of  a  general  nature  framed  in  the  interests  of  the 
public  welfare  exist  every-where,  and  they  are,  on  the  whole, 
continually  increasing  in  severity.  A  recent  decision  of  the 
Supreme  Court  of  the  United  States  has  declared  that  they 
violate  no  provision  of  the  Federal  Constitution.  Some  of 
these  restrictions,  as  upon  those  engaging  in  certain  occupa- 
tions, like  banking,  have  been  mentioned.  To  engage  in  any 
one  of  many  kinds  of  business  it  is  necessary  to  comply  with 
certain  prescribed  rules  and  regulations.  The  business  of  a 
plumber  in  Maryland  and  elsewhere  is  an  example.  The 
business  of  an  apothecary  is  another,  and  in  other  countries 
the  requirements  are  severe,  and  they  should  become  severer 
in  all  our  States.  Professional  pursuits,  like  the  practice  of 
law  and  medicine,  serve  as  further  examples.  Formerly, 
that  is,  during  (lie  Middle  Ages,  it  was  necessary  to  belong 
to  some  guild,  or  trade  corporation,  to  engage  in  any  one  of 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     75 

the  leading  industrial  occupations,  and  these  associations 
regulated,  generally  under  legal  supervision,  the  conditions 
under  which  businesses  should  be  followed. 

The  Freedom  of  Movement  for  working  people  has  be- 
come general  over  the  civilized  world  only  within  the  present 
century.  It  did  not  exist  in  England  when  Adam  Smith 
wrote  his  Wealth  of  Nations.  It  is  interesting  to  note  that 
restrictions  on  the  freedom  of  movement  arose  in  connection 
with  the  laws  for  the  relief  of  the  poor.  Each  parish  was 
anxious  to  avoid  the  care  of  the  poor  of  other  parishes,  and 
many  parishes  endeavored  to  escape  their  fair  burdens  by 
sending  away  their  poor  to  be  supported  by  other  parishes. 
Consequently,  it  was  provided  that  a  workingman  should  be 
required  to  demonstrate  his  ability  to  support  himself  without 
help  from  the  parish  before  he  was  allowed  to  settle,  or  that 
he  should  bring  certificates  from  his  former  parish  authori- 
ties by  which  these  bound  themselves  to  become  responsible 
for  his  maintenance  should  he  become  a  public  charge,  and 
for  his  removal  to  his  former  home.  This  was  so  difficult  a 
thing  to  do  that  it  kept  a  large  part  of  the  laboring  popula- 
tion stationary  in  the  parishes  where  they  were  born.  These 
laws  regulating  residence  were  called  laws  of  settlements, 
and  of  the  English  law  of  settlements  Adam  Smith  goes  so  far 
as  to  say  :  "  There  is  scarce  a  poor  man  in  England,  of  forty 
years  of  age,  I  will  venture  to  say,  who  has  not  in  some  part 
of  his  life  felt  himself  most  cruelly  oppressed  by  this  ill-con- 
trived law  of  settlements."  * 

"  Tramp  Laws/'— It  is  well  to  notice  recent  revivals  of 
restrictions  on  freedom  of  movement  of  wage-earners.  The 
abuses  of  this  freedom  in  the  United  States  have  led  in 
many  of  our  States  to  the  passage  of  "  tramp  laws,"  which 
imprison  a  man  who  wanders  about  the  country  without 
financial  resources.  Such  a  person  is  called  a  vagabond,  and 
in  cases  may  be  punished  even  by  a  year's  imprisonment  in 
a  penitentiary.  In  Southern  States  like  Georgia  he  is  put  in 
the  chain-gang,  and  compelled  to  work  for  the  State.  There 
*  Book  I,  chap,  x,  Part  II. 


76  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

can  be  no  doubt  that  the  public  suffered  severely  from  vaga- 
bonds, and  that  women  in  rural  districts  were  insulted  and 
even  assaulted  by  unprincipled  tramps.  Property  was  de- 
stroyed and  stolen.  Incendiarism  was  in  many  instances 
traced  to  tramps.  The  European  laws  of  settlements  grew 
up  in  efforts  to  correct  real  evils,  and  in  precisely  the  same 
manner  we  are  erecting  barriers  against  freedom  of  move- 
ment Avithout,  perhaps,  appreciating  their  full  significance. 
While  the  evils  inflicted  in  portions  of  the  country  were  in- 
tolerable, we  should  in  matters  like  this  proceed  with  caution. 

Many  workingtneii  in  America  claim  that  they  have  been 
cruelly  oppressed  by  tramp  laws;  that  they  have  been  mis- 
used and  even  imprisoned  for  efforts  to  seek  an  opportunity 
to  gain  an  honest  livelihood.  There  can  be  no  doubt  that 
innocent  poor  people  have  suffered  under  tramp  laws. 
Workingmen  have;  felt  this  so  keenly  as  to  demand  in  some 
of  the  platforms  of  their  political  parties  the  abolition  of  all 
tramp  laws,  which  is  undoubtedly  going  too  far.  Labor  or- 
ganizations, like  the  International  Cigar  Makers'  Union,  for 
example,  have  partially  remedied  the  evils  of  these  laws  and 
encouraged  the  free  movement  of  labor  by  providing  funds 
for  traveling  members  out  of  work.  Labor  papers  and  labor 
organizations  help  to  keep  workinginen  informed  of  oppor- 
tunities where  work  may  be  procured,  and  thus  still  further 
promote  the  free  movement  of  labor. 

Foreign  Immigration.— New  limitations  of  the  freedom 
of  international  movements  of  Workingmen  are  noteworthy. 
The  anti-Chinese  legislation  of  the  United  States  and  Aus- 
tralia is  designed  to  keep  from  these  countries  cheap  foreign 
laborers,  and  is  the  most  marked  example  of  this  recent  re- 
vival of  ancient  restrictions.  The  United  States  law  which 
forbids  Americans  making  contracts  with  foreign  laborers 
to  come  to  this  country  to  work  is  another  example.  Ef- 
forts are  being  made  still  further  to  restrict  free  interna- 
tional movements  of  working  people. 

3.  The  freedom  of  contract  with  rr.spr.ct  to  laltor  is 
the  third  form  in  which  the  freedom  of  labor  manifests  it- 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     77 

self.  This  means  the  legal  equality  of  employers  and  em- 
ployes in  labor  contracts.  This  in  a  general  way  may  be 
said  to  date  from  the  French  Revolution,  although  it  was  not 
universally  introduced  in  civilized  countries  until  much  later. 
Adam  Smith  and  the  men  of  his  day  expected  from  it  benef- 
icent results,  which  have  been  at  best  only  partially  real- 
ized. Philosophers  of  the  latter  part  of  the  eighteenth 
century  assumed  the  natural  equality  at'  all  men,  and  held 
that  oppressive  inequalities  were  the  result  of  legal  institu- 
tions. It  has  become  evident,  however,  that  their  assump- 
tions were  not  valid.  Economic  inequalities  place  the  ordi- 
nary employer  in  a  very  different  position  from  the  ordinary 
employe,  and  thus  the  natural  tendency  is  for  the  industri- 
ally strong  to  sho\v  their  superiority  iu  free  labor  contracts. 
The  industrially  strong  in  all  countries  are  consequently 
ardent  champions  of  the  freedom  of  the  labor  contract. 
Working-men  attempt  to  equalize  conditions  preliminary  to 
the  arrangements  of  labor  contracts  by  the  formation  of  labor 
organizations,  in  order  that,  as  capital  speaks  solidly  through 
one  representative,  as,  for  example,  the  president  of  a  street- 
car company,  labor  may  also  present  itself  as  a  unit  through 
some  chosen  leader. 

Restrictions  on  Labor. — The  freedom  of  the  labor 
contract  exists  nominally  in  countries  like  France,  Germany, 
England,  and  the  United  States.  Every-where,  however, 
there-  will  be  found  restrictions  on  the  right  of  combinations 
of  laborers  to  make  their  own  bargains  in  their  own  way,  to 
work  or  to  refuse  to  work,  to  select  their  own  companions 
during  work,  and  the  like.  These  restrictions  are  nowhere 
so  numerous  on  capital  combinations.  The  effect  of  recent 
judicial  decisions  in  the  United  States  has  been  still  further 
to  restrict  the  freedom  of  the  labor  contract  where  organiza- 
tions are  concerned,  and  to-day  this  freedom  is  more  limited 
in  the  United  States  than  in  England,  probably  not  than  in 
F ranee,  (Jermany,  or  Italy. 

b.)  Freedom  of  Landed  Property. — Freedom  of  landed 
property  means  the  right  to  buy  and  sell  landed  property 


78  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

* 

without  legal  restrictions.  This  again  is  a  new  right,  and  it 
is  not  fully  recognized  in  England  to-day — where  a  great  deal 
of  the  land  is  entailed.  It  was  introduced  in  Prussia  early 
in  this  century  by  the  reforms  of  the  statesmen  Stein  and 
Hardenberg.*  It  is  sometimes  called  free  trade  in  land.  It 
does  not  exist  with  respect  to  lands  granted  by  act  of  the 
last  Congress  to  Indians,  for  they  are  inalienable  for  twen- 
ty-five years.  Among  the  Jews  it  was  not  known.  Jehovah 
was  the  one  in  whom  the  title  to  their  land  was  vested,  and 
the  usufruct  was  granted  to  families  who  could  part  with  it 
only  temporarily.  It  was  returned  to  them  in  the  year  of 
jubilee.  It  is  in  this  connection  instructive  to  read  the  Mo- 
saic legislation  with  respect  to  land.  There  are  those  who 
think  that  the  nineteenth  century  has  yet  much  to  learn 
from  Moses.  Many,  in  fact,  are  dissatisfied  with  existing 
land  laws,  and  think  that  free  trade  in  land  as  now  known 
does  a  vast  amount  of  needless  harm,  and  is  a  robbing  of  the 
masses  for  the  benefit  of  the  lew.  This  opinion  is  not  shared 
by  the  majority  of  the  best  thinkers  on  socio-economic 
topics.  Perhaps  there  is  a  wide-spread  feeling  that  land 
laws  ought  to  be  amended  more  or  less,  without,  however, 
in  the  main  changing  the  fundamental  principles  on  which 
they  rest. 

c.)  The  Freedom  of  Capital  with  Respect  to 
Loans. — By  the  freedom  of  capital  with  respect  to  loans 
is  meant  the  abolition  of  prohibitions  of  interest  and  of 
restrictions  on  the  rate  of  interest.  The  Mosaic  legisla- 
tion prohibited  all  interest,  for  usury  in  older  literature 
means  not  merely  excessive  interest  but  any  interest  at 
nil.  Moses  allowed  the  taking  of  interest  from  strangers, 
but  in  certain  special  cases  it  was  unlawful  to  take  it  even 
from  them.  The  greatest  philosophers  and  statesmen  of 
classical  antiquity,  and  of  the  Christian  era  until  modern 
t lines,  have  been  opposed  to  the  taking  of  interest,  and  the 
laws  have  reflected  more  or  less  perfectly  their  views.  Re- 
cent opinions  have  favored  interest,  and  it  is  now  almost 
*  See  Set-ley's  Life  and  Times  of  Skin,  vol.  ii,  p.  20. 


FEA  TURKS  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.    79 

universally  taken  on  loans,  and  a  man  like  John  Ruskin, 
who  habitually  makes  loans  without  interest,  is  regarded  as 
very  peculiar,  if  not  erratic.  But  the  rate  of  interest  is  still 
generally  regulated  and  limited.  Any  rate  of  interest  is 
legal  in  England,  but  restrictions  probably  exist  in  all  other 
countries.  Restrictions  on  the  rate  of  interest  were  abol- 
ished in  Germany,  but  were  re-established  on  account  of 
the  abuses  of  the  freedom.  A  fixed  limit  was  not  placed 
to  lawful  interest,  but  the  judges  have  been  given  a  wide 
discretion  to  determine  what  is,  under  the  circumstances 
of  the  particular  case,  excessive,  and  therefore  usurious, 
interest. 

Restrictions  on  the  rate  of  interest  on  loans  exist  in  most 
of  the  States  and  Territories  of  the  American  Union.  There 
are,  according  to  a  recent  statement,  only  eleven  out  of  the 
forty-seven  States  and  Territories  where  no  limit  is  fixed  to 
the  rate  of  interest,  and  thirteen  where  no  penalty  for  usury 
exists. 

d.)  Freedom,  in  the  Establishment  of  Enterprises.— 
The  right  of  individuals  to  establish  enterprises  on  comply- 
ing with  general  regulations  is  of  a  far  more  ancient  date 
than  the  right  of  combinations  of  individuals  to  engage  in 
industrial  undertakings.  These  combinations  of  individuals 
usually  take  the  form  of  joint-stock  associations,  generally 
called  in  the  United  States  simply  corporations.  The  right 
of  free  establishment  of  corporate  enterprises  on  compliance 
Avith  provisions  of  general  laws  is  a  new  right,  barely  a  gen- 
eration old.  It  did  not  exist  in  England  until  1S55,  and  in 
some  of  our  American  States  it  dates  from  an  earlier  period, 
and  in  others  it  is  of  later  origin.  It  dates  in  Germany  from 
the  formation  of  the  empire  in  1ST  I,  and  in  Austria  it  does 
not  exist  yet.  It  formerly  required  a  special  law  to  enable 
a  body  of  men  to  associate  themselves  for  productive  pur- 
poses, especially  if  the  liability  of  associates  was  limited. 
The  older  idea  in  the  United  States  and  elsewhere  was  that 
combinations  of  capital  equally  with  combinations  of  labor 

were  dangerous;  but  there  was  this  difference:  special  laws 
4* 


80  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

were  passed  from  time  to  time  authorizing  the  formation  of 
associations  of  capitalists,  but  not  of  laborers.  Each  fresh 
application  for  a  charter  of  incorporation  was  presumed  to 
be  examined  on  its  merits.  If  a  body  of  men  desired  to 
form  a  bank,  the  legislature  was  supposed  to  examine  into 
their  financial  and  moral  fitness  for  the  enterprise,  perhaps 
also  into  the  need  for  such  an  enterprise,  and  to  grant  a 
charter  only  when  all  the  conditions  of  the  contemplated 
undertaking  were  satisfactory.  It  never  worked  well, 
especially  in  more  modern  times.  With  tlie  best  will  the 
task  transcended  the  powers  of  legislatures,  and  the  best 
will  was  often  wanting.  Bribery  on  an  immense  scale  was 
frequently  resorted  to,  and  charters  were  also  made  a  part  of 
the  system  ol  political  spoils.  Thus  earlv  in  this  century  it 
was  considered  as  an  unwarrantable  presumption  for  the 
Democrats  in  New  York  State  to  expect  a  bank  charter 
when  the  Federalists  were  in  oilice,  and  when  the  Democrats 
were  in  office  the  Federalists  tared  no  better.  It  was  only 
by  stratagem  that  Aaron  Burr  secured  a  bank  charter  when 
his  political  opponents  were  in  power  in  New  York.  lie  ob- 
tained a  charter  for  a  water  company,  one  clause  of  which,  in- 
nocent enough  at  first  glance,  really  gave  the  company  power 
to  engage  in  the  banking  business.  The  system  of  special 
charters  has  been  for  the  most  part  abandoned,  and  is  in 
some  parts  of  the  industrial  field  being  still  further  limited. 
Conditions  arc  severer  and  more  far-reaching  than  formerly, 
but  are  general  in  their  application. 

Restrictions  on  the  Establishment  of  Enterprises. 
— Important  exceptions  to  the  modern  rule  must  not  fail  of 
notice.  The  right  to  supply  certain  services  to  cities,  like 
light,  water,  and  transportation  of  passengers  by  street-car 
lines  and  elevated  railways,  is  secured  by  special  charter, 
act,  or  ordinance,  and  often  an  explicit  monopoly  is  granted 
with  what  must  in  the  nature  of  the  case  be  a  de  facto  monop- 
oly. All  of  the  evils  connected  with  the  old  general  system 
of  special  charters  is  connected  with  special  privileges  granted 
to  parties  to  engage  in  these  enterprises,  and  many  new  evils. 


FEA  TUBES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TIOX.     S 1 

They  are  in  one  way  or  another  connected  with  most  of  the 
evils  of  municipal  politics.  As  free  competition  is  impossi- 
ble in  the  case  of  electric  lights,  gas,  water,  and  street-car 
and  elevated  railway  service,  it  has  seemed  to  many  that  the 
only  way  to  correct  these  evils  is  to  abolish  the  corporations 
engaged  in  such  undertakings,  and  that  can  only  be  done 
by  turning  over  these  services  to  the  municipalities  them- 
selves; and  this  opinion  is  shared  by  the  author.  A  re- 
markable movement  in  this  direction  has  already  begun, 
ami  the  results  thus  far  experienced  have  been  most 
beneficial.  Water  supply  is,  fortunately,  nearly  every-where 
in  the  complete  control  of  cities.  Gas-works  are  mostly 
owned  by  municipalities  in  Germany,  and  quite  largely  and 
to  an  increasing  extent  in  England.  The  gas  consumed  in 
American  cities  is  mostly  supplied  by  private  parties,  Phila- 
delphia, Richmond  and  Alexandria,  Virginia,  and  Wheeling, 
West  Virginia,  being  exceptions.  But  there  is  every  reason 
to  expect  an  increase  in  the  number  of  cities  owning  and 
operating  gas-works  in  a  near  future.  Electric,  lighting  plants 
are  often  owned  by  cities,  and  English  laws  look  to  the  ulti- 
mate acquisition  of  private  establishments.  Twenty  or  thirty 
American  cities,  :is  Painesville  and  Xenia,  Ohio;  Chicago 
and  Champaign,  Illinois;  Bay  City,  Michigan;  Dunkirk,  New 
York;  Easton,  Pennsylvania;  Lewiston,  Maine,  own  and 
operate  electric  lighting  plants,  and  with  the  most  satisfac- 
tory results,  the  general  cost  for  arc  lights  of  two  thousand 
candle-power  burning  all  night  being  from  twelve  to  twenty 
cents  per  night,  whereas  private  corporations  charge  from 
forty  to  sixty  cents,  and  even  more. 

Xew  limitations  on  the  freedom  to  engage  in  railwav  en- 
terprises are  now  being  enacted  in  the  United  States,  while 
the  freedom  of  enterprise  has  in  other  countries  for  some 
time  been  abolished.  Parties  in  Massachusetts  who  desire 
to  build  a  new  railway  must  show  that  there  is  a  public, 
need  for  the  undertaking,  and  a  similar  law  has  been  urged 
upon  the  authorities  of  Xew  York  State.  This  prevents  a 
great  deal  of  waste,  in  doing  away  with  the  construction  of 


82  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

parallel  and  other  useless  lines  of  railways,  but  as  it  adds 
to  the  value  of  existing  railway  property  by  removing  pos- 
sible competitors  it  would  seem  that  it  is  only  proper  that 
in  the  form  of  taxes  on  gross  revenues  or  otherwise  the 
railways  should  be  made  to  pay  for  the  special  privileges 
they  enjoy  after  the  abolition  of  freedom  in  the  establish- 
ment of  railway  enterprises.  It  should  never  be  done 
until  public  control  over  these  enterprises  has  been  estab- 
lished on  the  firmest  basis. 

It  may,  perliaps,  be  laid  down  as  a  general  rule  that  ichcn 
for  any  class  of  business  it  becomes  necessary  to  abandon 
the  principle  of  freedom  in  the  establishment  of  enterprises 
tli is  business  should  be  entirely  turned  over  to  the  government, 
cither  local,  titate^  or  federal,  according  to  the  nature  of  the 
undertaking. 

e.)  Freedom  of  the  Market.— The  freedom  of  the  mar- 
ket means  the  right  to  buy  and  sell  where  one  pleases.  This 
is  another  new  right  and  one  not  every-where  recognized. 
We  accept  this  principle  in  the  United  States  with  respect  to 
domestic  trade,  but  not  with  respect  to  foreign  commerce,  on 
which  we  lay  heavy  taxes  for  the  express  purpose  of  restrict- 
ing it.  Restrictions  on  domestic  trade  were  the  rule  rather 

O 

than  the  exception  in  the  last  century,  not  only  in  the  Ameri- 
can States  but  in  Europe.  Our  Federal  Constitution  of  1789 
established  in  the  United  States  the  principle  of  freedom  of 
domestic  trade,  and  reforms  accompanying  or  following  the 
French  Revolution  led  to  its  general  establishment  else- 
where. England  abandoned  the  policy  of  restricting  foreign 
commerce  in  1S1(>,  and  it  was  then  expected  by  free-traders, 
as  those  are  called  who  believe  in  the  principle  of  freedom, 
that  other  nations  would  speedily  follow  her  example 
Those  anticipations  have  not  been  reali/ed,  but,  on  the  con, 
trary,  new  restrictions  have  since  then,  especially  in  recent 
years,  been  established,  and  old  restrictions  sharpened. 

The  cause  has  been  the  policy  of  protection,  which  will 
be  discussed  hereafter.  Protection  achieved  a  great  triumph 
in  the  abandonment  of  free  trade  principles  and  the  cstab- 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     83 

lishraent  of  a  high  tariff  by  Germany  in  1879,  and  the  presi- 
dential election  of  1888  in  the  United  States  was  by  many 
regarded  as  a  triumph  of  protection. 

Advantages  of  Competition. — The  advantages  of  gen- 
eral freedom  of  the  market  are  more  talked  about  than  the 
disadvantages,  and  are  consequently  better  understood. 
Under  the  system  of  freedom  capital  and  labor  tend  to  flow 
to  places  where  they  are  most  needed,  and  that  is  generally 
Avhere  they  are  most  productive.  The  absence  of  restrictions 
spurs  the  industrially  gifted  on  to  activity  in  enterprises,  as 
the  rewards  of  success  are  enormous.  Competition  develops 
new  forces,  and  reveals  new  resources  of  economy,  excellence, 
and  variety  of  products.  The  modern  man,  like  the  modern 
trotter,  has  been  developed  in  the  race-course.  Every  one 
must  be  active  and  alert  or  suffer  loss.  Progress  in  techni- 
cal processes  has  been  rapid,  and  the  formation  of  new  en- 
terprises has  been  encouraged. 

Disadvantages  of  Competition.— When  we  come  to 
speak  of  the  disadvantages  of  the  modern  system  of  free- 
dom, that  is  to  say,  of  competition,  it  occurs  to  us  that  the 
moral  atmosphere  of  a  race-course  is  not  a  wholesome  one. 
Competition  tends  to  force  the  level  of  economic  life  down 
to  the  moral  standard  of  the  worst  men  who  can  sustain 
themselves  in  the  business  community.  Adulteration  of 
products  introduced  willingly  by  the  unscrupulous  is  fol- 
lowed reluctantly  by  a  higher  type  until  it  becomes  general. 
Long  hours,  child  labor,  and  labor  of  married  women  in 
stores,  in  factories,  and  even  in  mines  underground,  are  all 
brought  about  in  a  similar  manner.  Cheap  prices  must  be 
met  by  cheap  prices.  A  tendency  to  reduce  wages  is  like- 
wise explained.  On  the  other  hand,  when  the  industrial 
situation  favors  labor,  competition  is  apt  to  raise  wages,  es- 
pecially where  well-managed  labor  combinations  exist. 

Quality  also  often  suffers  under  the  race  for  cheapness. 
The  report  to  the  German  government  on  the  exhibits  of 
Germany  at  our  Centennial  Exhibition  in  1870  was  "schlecht 
utul  billiy"  bad  and  cheap. 


84  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Bubble  companies  and  all  sorts  of  swindles  defraud  and 
degrade  multitudes,  and  the  good  suffer  with  the  bad.  Ac- 
tual monopolies  oppress  the  people  worse  than  former  legal 
monopolies,  because  comparatively  few  men  have  as  yet 
learned  to  distinguish  between  the  industrial  functions  of 
private  individuals  and  corporations  and  those  of  public 
bodies,  such  as  city,  State,  and  Union. 

The  danger  of  very  unequal  distribution  of  wealth,  and 
wide  gaps  between  social  classes  so  that  they  are  to  one  an- 
other like  foreign  nations,  are  evils  closely  connected  with 
those  already  enumerated. 

Social  Evils  also  Economic. — It  may  be  argued  that 
some  of  these  evils,  while  social,  are  not  economic,  and  that 
others  are  purely  moral,  and  that  consequently  they  do  not 
fall  within  the  premises  of  political  economy.  As  has  been 
said,  however,  the  economic  department  of  social  life  cannot 
be  separated  from  other  great  social  life-spheres.  JSocial  and 
moral  evils  react  on  wealth-creation,  and  that  in  a  very  sim- 
ple manner.  The  chief  factor  in  production  is  the  human 
factor,  and  whatever  affects  this  will  certainly  influence 
wealth-creation. 

We  must  remember  in  all  this  discussion  that  the  pro- 
duction of  goods  is  onlv  a  means  to  an  end,  and  to  show 
that  a  practical  measure  will  create  wealth  is  not  enough 
to  commend  it.  The  main  question  is,  What  effect  will  it 
have  on  the  entire  life  of  the  nation,  also  of  humanity  ? 
The  true  starting-point  in  economic  discussions  is  the  ethical 
community,  of  which  the  individual  is  a  member. 

Remedies  for  the  Evils  of  Economic  Freedom. — 
AVe  are  not  helpless  in  the  face  of  economic  evils  connected 
with  freedom.  Combinations  of  interested  parties,  like  work- 
ing-men in  their  labor  organizations,  also  capitalists  in  their 
chambers  of  commerce,  merchants1  and  manufacturers'  as- 
sociations, and  the  like,  can  set  themselves  against  the  evils 
under  which  we-  suffer,  and  some  of  the  worst  of  them  can 
be  corrected  by  laws,  and  thus  the  moral  level  of  competition 
can  be  raised.  Sunday  work  serves  as  an  example.  Also 


FEATURES  OF  THE  ECONOMY  OF  THE  MODERN  NA TION.     85 

laws  directed  against  the  employment  of  children  under  a 
certain  age  in  factories.  These  laws  when  enforced  by 
factory  inspectors  and  other  suitable  agencies  do  not  destroy 
competition.  A.  and  B.,  former  rivals,  are  still  left  to  com- 
pete with  each  other,  but  under  altered  conditions  which  ap- 
ply alike  to  all.  The  moral  level  of  competition  has  been 
raised. 

There  is  a  danger  of  the  injurious  development  of  vast  es- 
tablishments and  the  crushing  out  of  the  small  man  under 
the  system  of  freedom.  Co-operation  can  do  something  to 
arrest  this  evil.  It  has  already  achieved  considerable  results 
in  England,  Germany,  France  and  the  United  States,  and  is 
destined  to  accomplish  more  in  the  future.  A  great  deal 
can  be  accomplished,  not  by  resisting  powerful  economic  cur- 
rents, like  the  tendency  of  production  to  concentration,  but 
rather  by  guiding  and  directing  the  current  in  such  a  manner 
as  to  minimize  the  evils  connected  with  it  and  to  maximize 
the  good. 

It  has  been  laid  down  as  a  general  rule  by  an  English 
writer  that  experience  has  demonstrated  two  things:  the  ad- 
vantage's of  freedom  in  trade  and  commerce  ;  the  necessity 
of  restrictions  in  the  Held  of  labor  and  in  behalf  of  labor. 

2.  Ethics  and  the  Economic  Life  of  Nations. — 
It  is  recognized  now  that  there  should  be  no  contradiction 
between  ethics  and  economic  life,  and  that  ethics  demands  a 
truly  civilized  life  for  each  individual;  demands  that  so  Car 
as  this  is  possible  each  should  be  supplied  with  economic  or 
material  goods  so  as  to  satisfy  all  his  reasonable  wants  and 
to  give  opportunity  for  the  completes!  development  of  all 
his  faculties.  It  is  further  demanded  that  the  production  of 
goods  should  so  be  conducted  as  to  minister  to  the  advance- 
ment of  the  producers  and  to  the  advancement  of  society  in 
general.  There  has  been  a  return  of  political  economy  in 
this  respect,  as  in  so  many  others,  to  older  and  sounder  con- 
ceptions. \Ve  have  gone  back  to  the  (irceks,  notably  to 
Plato  and  Aristotle,  who  subordinated  all  economic  inquiries 
to  ethical  considerations.  Thev  never  asked  merelv,  "  I  low 


86  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

can  a  nation  become  wealthy  ?"  but  "  How  can  the  economic 
institutions  and  arrangements  of  a  nation  be  so  ordered  that 
the  highest  welfare  of  all  citizens  may  be  best  promoted  ?" 
This  mode  of  thought  was  common,  it  is  scarcely  too  much 
to  say,  to  all  great  writers  on  socio-economic  and  political 
topics  until  a  wave  of  revolutionary  materialism  in  the  last 
century  swept  over  the  world,  and  since  then  there  has  been 
an  effort  to  divorce  ethics  and  economics,  which  practically 
means  the  subordination  of  ethics  to  economics.  The  higher 
social  life-spheres  have  been  asked  to  minister  to  the  lower, 
the  feet  have  been  exalted  above  the  head,  and  men  discuss 
social  questions,  like  child  labor  and  Sunday  work,  in  parlia- 
ments and  legislatures  in  such  a  way  as  to  show  that  the 
main  thing  in  their  minds  is  the  greatest  possible  wealth- 
creation,  and  that  they  think  humanitarian  considerations — 
very  likely  called  sentimentalism — ought  to  bend  to  that. 
It  is  necessary  to  show  that  popular  enlightenment  will  add 
to  the  productive  powers  of  the  community,  or  will  help  to 
protect  wealth  against  depredations,  in  order  to  secure  ap- 
propriations for  public  schools;  and  any  thing  so  far  removed 
from  the  lowest  material  considerations  as  art  and  music  is 
considered  in  most  instances  as  an  improper  field  for  the 
fostering  care  of  government,  at  least  in  the  United  States, 
and  politicians  turn  a\vay  disdainfully  from  the  highest 
interests. 

Ideals  for  Economic  Progress. — Happily  there  seems 
to  be  a  revival  of  truer  conceptions,  and,  as  said,  there  is  a 
tendency  to  go  back  to  the  best  thought  of  earlier  periods. 
Several  economists  have  presented  social  ideals  to  which  eco- 
nomic life  should,  so  far  as  may  be,  minister.  Four  of 
these  will  be  presented  herewith.  The  following  is  quoted 
by  Professor  Fawcett  in  the  sixth  edition  of  his  Political 
Economy  :  "  That,  only  true  and  most  supreme  happiness — 
the  development  of  the  human  faculties  to  a  harmonious  and 
consistent  whole." 

Professor  Schiifllc',  a  German  writer,  in  his  answer  to  the 
question,  "What  is  the  best  distribution?"  presents  a  social 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     87 

ideal.  "  It  is,"  says  he,  "  that  distribution  of  income  which 
brings  society  as  a  whole,  and  in  all  its  subdivisions,  nearest 
to  perfection."  * 

Professor  Wagner,  the  distinguished  Berlin  professor, 
gives  us  this  ideal  of  industrial  society :  "  Large  national 
resources  and  large  national  incomes,  and  at  the  same  time 
such  a  distribution  of  the  same  that  even  the  less  favorably 
situated  may  be  certain  of  a  sufficient  income  to  satisfy  all 
necessary  wants  and  to  enable  them  to  participate  in  the 
enjoyment  of  the  more  important  higher  goods  of  our  age."  f 

A  well-known  Belgian  professor  of  political  economy  pre- 
sents this  ideal  in  his  treatise  on  political  economy:  "The 
complete  and  harmonious  development  of  every  faculty." 

3.  Economic  Life  and  the  State. — The  third  and  at 
present  the  last  feature  of  economic  life  to  be  mentioned  is 
its  relation  to  the  State. 

When  John  Stuart  Mill  attempted  to  enumerate  and  class- 
ify the  functions  of  the  State  he  found  that  only  one  thing 
was  common  to  them  all,  and  that  was  public  expediency. 
These  are  his  words  :  "The  admitted  functions  of  govern- 
ment embrace  a  much  wider  field  than  can  easily  be  included 
within  the  ring-fence  of  any  restrictive  definition,  and  .  .  . 
it  is  hardly  possible  to  find  any  ground  of  justification  com- 
mon to  them  all,  except  the  comprehensive  one  of  general 
expediency." 

Utility  the  Criterion  of  State  Action. — There  seems 
in  the  nature  of  things  no  more  reason  why  the  State  should 
do  one  thing  rather  than  another  except  that  it  is  more  use- 
ful. If  both  are  equally  essential  to  the  public  welfare  there 
is  no  more  reason  why  the  State  should  punish  crime  than 
why  it  should  construct  and  operate  a  steam  railway.  There 
is  great  confusion  of  thought  on  this  subject,  and  the  duties 
of  the  State  \\ill  be  referred  to  again  ;  but  it  may  be  asked, 
Whence  the  source  of  the  authority  of  the  State  to  do  any 
thing  at  all  ?  There  is  an  ancient  theory  according  to  which 

*  Poo  Schonborg's  Ifandliurh  der  Politischen  OekonomJc,  1st  edition,  vol.  i, 
]).  -i:i5.  f  Ibid. 


88  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

it  is  assumed  that  all  citizens  have  entered  into  contract  rela- 
tions with  one  another  and  have  established  government. 
It  can  be  scarcely  necessary  to  discuss  this  fiction  at  present, 
so  generally  has  it  been  discarded  by  thinkers.  No  one  has 
seen  this  contract,  and  all  the  elements  of  a  contract  are 
wanting.  Any  thing  so  vague  and  indefinite  as  the  assumed 
contract  could  not  stand  as  a  contract  in  a  court  of  law  for 
one  instant.  Sometimes  the  writing  which  the  Pilgrim 
lathers  signed  on  the  Mayflower  in  1(520  establishing  civil 
government  is  adduced  as  an  illustration  of  a  contract  origin 
of  government.  But  the  Pilgrim  fathers  then  originated  no 
new  government.  They  were  already  living  under  a  govern- 
ment, that  of  England,  to  which  for  over  a  century  their 
successors  professed  loyal  adherence.  They  did  not  claim 
to  establish  a  new  sovereignty.  Even  had  they  done  so,  is 
a  contract  once  signed  to  bind  men  forever?  Are  the  living 
to  be  slaves  of  the  dead  ?  Great  political  thinkers,  like  John 
Stuart  Mill  of  England  and  Hluntschli  of  Heidelberg,  say 
that  the  validity  of  contracts  of  a  governmental  nature,  as, 
for  example,  treaties,  should  lie  limited  to  one  generation, 
say  thirty-five  years.  But  if  a  contract  is  signed,  whence 
comes  the  authority  of  the  signers  to  sign  a  contract  binding 
themselves  and  others  to  maintain  and  obey  government? 
The  creature  becomes  superior  to  the  creator,  and  may  call 
on  the  creator  to  lay  down  his  life,  or  may  take  it  against 
his  will.  Hut  this  absurdity  will  not  be  considered  further, 
(••ranted  that  contract  is  the  origin  of  government,  how  can 
it  be  shown  that  government  has  any  right  to  do  one  thing 
more  than  another  excep:  <  n  grounds  of  expediency?  What 
other  indications  of  the  nature  of  the  contract  have  we 
than  the  laws,  constitutions  as  fundamental  laws  included? 
Would  not  then  the  functions  of  government  change  with 
changes  in  the  laws  and  constitutions? 

If  utility  be  regarded  as  the  justification  of  government 
of  course  the  whole  cause  of  controversy  falls  away.  It  is 
simply  necessary  to  show  that  a  thing  is  useful  to  justify  it. 
Ifdod  is  the  source  of  authority  and  the  justification  of  gov- 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     89 

ernment,  its  ultimate  ground,  then  let  some  one  show  any 
other  limitations  than  expediency  which  He  has  established 
to  the  functions  of  government. 

Government  and  Democracy. — The  modern  concep- 
tion of  the  State  is  that  it  is  a  co-operative  community,  car- 
rying with  it  the  power  of  coercion,  and  thus  differs  from 
voluntary  co-operative  associations.  The  State  is  a  coercive 
co-operative  commonwealth.  The  people  act  through  the 
State  and  its  various  subdivisions  and  minor  civil  divisions. 
"  We,  the  people,"  establish  through  our  federal  government 
a  post-office.  "  We,  the  people,"  do  other  things  through  our 
government  of  New  York  State,  or  Maryland,  as  the  case  may 
be.  "  We,  the  people,"  do  still  other  things  through  our 
agents,  the  municipal  authorities  of  New  York,  Boston,  or 
Baltimore.  An  older  conception,  inherited  from  European 
despotisms,  pronounces  State  action  "  paternalism,"  but  those 
who  call  such  a  thing  as  the  establishment  of  gas-works  by  a 
municipality  "paternalism"  have  never  grasped  the  funda- 
mental idea  of  modern  democracy,  which  is  that  government 
is  not  something  apart  from  us  and  outside  of  us,  but  we 
ourselves.  Government  activity  is  not  dreaded  as,  under 
the  influence  of  ideas  disseminated  by  French  revolutionary 
leaders,  it  was  early  in  this  century.  Governmental  action 
is  one  of  the  most  powerful  factors  promoting  civilization, 
and  in  a  country  like  Germany  we  observe  a  high  civiliza- 
tion, every  part  of  which  is  largely  the  result  of  govern- 
mental activity. 

Individual  Enterprise  also  Necessary. — On  the  other 
hand,  it  is  felt  that  the  domination  of  any  one  principle  in  in- 
dustrial life  must  be  disastrous.  Accordingly,  outside  the 
field  of  governmental  activity,  we  desire  afield  for  the  indus- 
trial activity  of  individuals  and  of  voluntary  combinations  of 
individuals  in  partnerships,  co-operative  associations,  joint- 
stock  corporations,  and  sonic  will  say — while  others  will  dis- 
pute it — for  combinations  of  corporations,  as  in  the  newest 
development  of  industrial  organization,  the  trust. 

Some  of  the  Functions   of  Government. — The  pur- 


90  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

pose  of  the  State  then  is,  in  its  broadest  terms,  to  promote  the 
welfare  of  the  people,  and,  more  in  detail,  to  establish  and 
regulate  economic  institutions,  such  as  property  and  inheri- 
tance, to  separate  public  from  private  property,  to  protect 
persons  and  property,  to  establish  the  conditions  of  contract, 
and  to  enforce  contracts  under  these  conditions;  to  promote 
education,  morals,  science,  art,  to  guard  the  public  health,  to 
administer  charities,  to  raise  the  level  of  compel  ition  by  pro- 
hibiting those  forms  of  it  which  are  disastrous,  to  manage — 
itself,  or  through  some  subdivision  like  the  municipality- 
natural  monopolies,  such  as  gas,  electric  light,  water  supply, 
street-car  lines,  steam  railways,  etc.,  and  to  guard  certain 
permanent  interests  of  the  nation,  such  as  the  maintenance 
of  a  Bufh'cicnt  area  of  forests,  suitably  selected.  These 
things  private  individuals  cannot  do,  or  cannot  do  so  well, 
and  it  may  be  maintained  without  fear  of  successful  contra- 
diction that,  in  recognition  of  this,  civilized  nations  are,  to  an 
ever-increasiiiG:  degree,  performing  these  functions. 

o  ™  '    1  ~ 

Forestry. — It  is  not  desirable  in  this  place  to  dwell  upon 
these  several  functions.  Treatises  on  political  science  ex- 
plain the  reason  why  many  of  them  should  be  performed. 
The  expediency  of  other  functions  has  already  been  explained, 
and  more  will  be  said  about  them  in  later  chapters  of  this 
work.  A  few  words,  however,  may  be  said  about  forestry 
in  this  place.  All  governments  are  taking  upon  themselves 
the  ownership  and  management  of  forests.  New  York  State 
has  acquired  forests  in  the  Adirondacks,  and  has  entered 
upon  forestry,  having  in  her  employ  foresters.  Bills  have 
been  brought  before  Congress  which  look  to  management  of 
forests  as  a  permanent  function  of  our  national  government. 
Switzerland,  France  and  Germany  are  increasing  the  area  of 
governmental  forests.  The  reasons  are  very  obvious.  First 
of  all,  it  may  be  said  that  rational  forestry  requires  plans  to 
be  made  for  one  hundred  and  twenty  years  in  advance. 
Trees  must  be  planted  to  be  felled  at  the  expiration  of  that 
long  period,  for  it  takes  that  length  of  time  for  them  to  grow 
to  their  full  size,  and  when  they  are  allowed  to  grow  to  full 


FEA  TURES  OF  TUB  ECONOMY  OF  THE  MODERN  NA  TION.     91 

size  the  amount  of  timber  needed  can  be  grown  on  the  small- 
est amount  of  land.  Private  individuals  will  not,  however, 
invest  money  from  which  they  expect  to  receive  no  return  for 
over  a  century.  Second,  forests  ought  to  be  cultivated  on 
a  vast  scale,  on  land  especially  adapted  for  forests — land  often 
good  for  nothing  else — and  certain  great  regions,  like  steep 
mountain  sides  and  sources  of  streams,  ought  to  be  entirely 
covered  with  forests.  Their  climatic  influences  are  generally 
believed  to  be  important,  and  forests  with  their  leaves  and 
undergrowth  certainly  prevent  rainfall  from  rapidly  rushing 
down  mountain  sides  and  deluging  the  country  below.  For- 
ests prevent  a  waste  of  soil.  It  is  said  that  where  forests  have 
been  rashly  removed  from  mountain  sides  in  Baden,  Ger- 
many, and  in  Switzerland,  it  will  take  three  hundred  years  to 
repair  the  damage.  Soil  must  be  slowly  formed  again.  Pri- 
vate individuals  will  not  select  for  forestry  vast  tracts  of  land 
properly  situated.  In  America  farmers  have  quite  generally 
kept  a  few  isolated  acres  in  woodland,  but  this  is  not  what  is 
wanted.  Very  likely  the  land  kept  in  trees  is  better  adapted 
for  something  else,  and  forests  may  not  be  needed  at  this 
particular  point.  Third,  it  requires  highly  trained  scientific 
men  to  take  care  of  a  forest.  It  is  necessary  to  go  through 
high  schools,  to  follow  a  course  for  several  years  in  a  forestry 
academy,  and  then  to  supplement  this  by  an  apprenticeship 
of  several  years  in  practical  work  in  forests.  Only  a  State 
owning  tens  of  thousands  or  hundreds  of  thousands  of  acres 
can  train  up  and  organize  a  properly  qualified  body  of  scien- 
tific foresters.  The  difference  between  a  forest  which  grows 
up  wild  and  one  which  grows  up  under  a  proper  system  of 
culture  is  so  great  that  the  trained  eye  can  detect  the  differ- 
ence nearly  as  far  as  sight  can  reach,  and  it  is  probably  safe 
to  say  that  it  takes  twice  as  much  land  to  supply  a  jjiven 
need  when  forests  grow  up  of  themselves  as  where  a  rational 
system  of  forest  culture  obtains.  Fourth,  when  forests  arc 
cultivated  in  large  tracts,  as  they  should  be,  covering  per- 
haps an  entire  mountain,  very  considerable  quantities  of  game 
can  l>e  grown,  and  this  forms  ;iu  important  element  in  the 


92  AN-  INTRODUCTION  TO  POLITICAL  ECONOMY. 

food  of  a  people.  Our  old  private  system  of  forests  in  Amer- 
ica results  in  almost  a  total  loss  of  game  in  the  settled  parts 
of  the  country.  Fifth,  although  forests  do  not  pay  private 
individuals,  the  profits  of  Belgian  forests,  for  example,  not 
exceeding,  it  is  said,  one  percent,  on  their  selling  value, they 
do  pay  the  people  as  a  whole,  on  account  of  their  general 
beneficial  effects. 

More  might  be  said  on  this  topic  were  not  space  too  lim- 
ited. It  is  manifest  from  this  that  petty  mensures  which 
some  of  our  States  are  introducing,  like  tax  exemption  for 
planting  a  few  trees  or  covering  even  a  few  acres  with  trees, 
will  never  accomplish  any  thing  of  economic  significance. 
Even  "arbor  days"  are  of  no  account  save  for  their  educa- 
tional value.  On  that  account,  and  on  that  account  :ilone — as 
well  as  perhaps  for  the  sake  of  another  holiday — they  should 
be  encouraged. 

Public  and  Private  Responsibilities.— It  is  seen  in 
general  that  there  is  no  limit  to  the  right  of  the  State,  the 
sovereign  power,  save  its  ability  to  do  good.  Duty,  func- 
tion, is  co-extensive  with  power.  The  State  is  a  moral  person. 
It  may  be  further  said  in  general  that  the  fundamental  prin- 
ciple, the  basis  of  the  economic  life  of  modern  nations,  is  in- 
dividual responsibility.  It  is  designed  that  each  grown  per- 
son should  feel  that  the  welfare  of  himself  and  of  his  family, 
if  he  has  one,  rests  upon  himself.  The  State  enters  where  his 
powers  are  insufficient,  or  we  may  express  it  better  iti  this 
way:  for  the  attainment  of  certain  ends  he  finds  it  advanta- 
geous to  co-operate  with  his  fellows  through  town,  city,  State, 
federal  government,  and  the  performance  of  public  duties  as 
well  as  private  ditties  is  helpful  in  the  development  of  the  in- 
dividual and  of  the  race.  The  performance  of  the  true  func- 
tions of  government  tends  to  promote  energy  and  self-reli- 
ance. 

It  will  be  noted  that  by  far  the  greater  part  of  economic 
life,  namely,  in  the  main  agriculture,  commerce,  and  manu- 
factures, is  left  to  individuals  and  voluntary  associations  of 
individuals.  However,  wherever  mistakes  have  been  made, 


FEA  TURES  OF  THE  ECONOMY  OF  THE  MODERN  NA  TION.     93 

and  private  parties  have  been  allowed  to  encroach  upon  the 
functions  of  the  State,  these  mistakes  cannot  be  corrected 
in  a  day.  It  requires  long,  laborious,  and  patient  work  to 
remedy  evils  of  this  character.  On  the  other  hand,  it  is  al- 
ways easy  for  the  State  to  give  up  any  industry  if  it  is  desir- 
able, and  to  turn  it  over  to  private  parties. 


Read  H.  C.  Adams's  Relation  of  the  State  to  Industrial 
Action.  This  is  undoubtedly  one  of  the  best  treatises  ever 
written  in  the  English  language  on  the  functions  of  the  State. 
A  work  by  the  late  gifted  English  economist,  W.  Stanley 
Jevons,  The  State  and  Labor,  may  also  be  consulted  with 
profit  on  the  subject  with  which  it  deals. 


CHAPTER  X. 

POLITICAL  ECONOMY  DEFINED. 

Derivation  of  the  Term. — We  have  now  surveyed  the 
characteristics  and  growth  of  economic  society,  and  are  in  a 
position  to  inquire  more  carefully  into  the  nature  of  the  sci- 
ence which  deals  with  this  society;  namely,  political  economy. 
The  term  political  economy  is  derived  from  three  Greek 
words.  Economy  is  derived  from  oilnoc;  and  v6[io$ ;  ot/cof  in 
this  case  meaning  household  goods,  and  vb]io<;  law,  custom, 
or  usage,  government  or  regulation.  Political  conies  through 
the  corresponding  Greek  adjective  from  rro^ig,  and  this  means 
state  as  well  as  city;  for  in  Greece  cities  were  of  such  pre- 
ponderating importance  and  influence  in  the  States  that  the 
same  word  was  used  for  both,  just  as  on  account  of  the  rela- 
tively greater  significance  of  the  rural  districts  we  have  come 
to  use  land  and  country  to  denote  the  entire  State.  Econo- 
my, then,  means,  etymologically,  the  regulation  of  the  house- 
hold, or  housekeeping,  and  it  can  be  used  to  designate  the 
science  or  art  of  housekeeping,  although  a  separate  word 
like  economics  would  really  be  better.  Political  economy 
is,  then,  the  housekeeping  of  the  State,  or  the  management 
of  the  goods  in  or  pertaining  to  the  State,  or  of  the  goods  of 
the  citizens  so  far  as  they  have  any  public  significance,  which 
happens  whenever  private  economies  enter  into  reciprocal 
relations.  Political  economy,  then,  means  the  economic  life 
of  the  nation,  and  afterwards  the  science  of  national  house- 
keeping, although  here  again,  if  obstinate  usage  did  not  stand 
in  the  way,  another  expression  like  political  economics  would 
really  be  preferable.  National  housekeeping  is  apt  to  sound 
strange  to  English  cars,  but  it  is  sanctioned  by  as  high  an 
authority  as  Mr.  James  Russell  Lowell,  and  it  .seems  desirable 


POLITICAL  ECONOMY  DEFINED.  95 

that  it  should  become  familiar.  It  is  an  expression  full  of 
meaning,  and  if  rightly  understood  an  excellent  definition 
of  political  economy.  It  corresponds  to  the  German  word 
"  Volkswirthsc/uif talc/ire:  Volk,  nation,  To/Uf  —  wirthschaft, 
housekeeping,  OLKCK; — and  le/ire,  science,  VOUCH;. 

Political  Economy  Defined. —  We  may  define  political 
economy  in  its  most  general  terms  as  the  science  ichich  tre«  «• 
of  man  as  a  member  of  economic  society.  It  deals,  then,  witu 
social  relations,  like  other  branches  of  sociology;  but  these 
social  relations  which  form  the  subject-matter  of  political 
economy  are  of  an  economic  or  industrial  nature.  Nearly- 
all  social  phenomena  have  their  economic  aspects,  so  that  it 
may  at  first  appear  that  there  is  no  limitation  to  political, 
economy  whatever  save  the  bounds  of  sociology.  Such  is 
not  the  case,  however,  for  the  limitation  of  political  economy 
is  found  in  its  peculiar  stand-point.  This  may  b'i  Drought 
out  by  some  such  definition  as  this  :  Political  economy  is  t/ie 
science  ichich  deals  with  social  phenomena  from  the  economic 
stand-point.  Social  phenomena  connected  with  the  produc- 
tion and  consumption  of  material  good  things  are  the  prov- 
ince of  political  economy.  The  political  economist  deals 
with  religious  phenomena,  with  the  social  phenomena  of  art 
and  literature,  with  urban  sanitation,  and  any  number  of  sim- 
ilar subjects,  but  always  as  in  some  way  or  another  connected 
with  the  production  and  consumption  of  material  good  things. 
The  physician  and  economist  will  both  discuss  child  labor 
and  excessive  hours  of  toil  in  over-heated  factories;  but  the 
specialty  of  each  will  be  apparent  in  their  utterances.  Differ- 
ent classes  of  men  who  concern  themselves  with  society  do  not 
treat  of  separate  classes  of  social  phenomena,  but  treating  of 
the  same  phenomena  from  various  points  of  view  the  labors 
of  each  should  be  supplemental  to  those  of  all  the  others. 

A  more  detailed  definition  of  political  economv  is  on  some 
accounts  desirable,  and  one  is  presented  herewith  which  is 
taken  from  a  German  author,  Professor  von  Scheel,  and 
slightly  modified.  It  may  be  properly  prefaced  by  remind- 
ing the  reader  that  the  word  economy  is  technically  used  to 


96  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

express  the  entirety  of  those  actions  of  a  person  which  relate 
to  the  acquisition  and  employment  of  material  goods  for  the 
satisfaction  of  human  wants.  We  may  then  say  that  POLIT- 
ICAL ECONOMY  DESCKIBES  THE  RELATIONS  OF  PRIVATE  ECON- 
OMIES TO  ONE  ANOTHER  AND  THEIR  UNION  INTO  LARGER 
ECONOMIC  COMMUNITIES  (AS  TOWNSHIP,  CITY,  STATE),  TAKING 
[NTO  ACCOUNT  THEIR  ORIGIN,  THEIR  GROWTH,  AND  THEIR  CON- 
STITUTION, A>TD  PRESCRIBING  RULES  FOR  THAT  ORDERING  OF 
THESE  RELATIONS  BEST  CALCULATED  TO  MEET  THE  DEMANDS 
OF  THE  DEGREE  OF  CULTURE  ALREADY  ATTAINED  AND  TO  BE 
ATTAINED  IN  THE  FUTURE. 

Distinction  Between  Private  and  Political  Econ- 
omy.— This  definition  marks  off  the  sphere  of  domestic 
economy  from  that  of  political  economy.  Political  economy 
considers  social  matters.  It  does  not  attempt  to  give  direc- 
tions for  the  acquisition  of  wealth  by  a  single  individual,  but 
to  inquire  into  the  nature  of  those  phenomena  which  appear 
when  individuals  in  their  efforts  to  gain  a  livelihood  and  in 
their  employment  of  material  goods  enter  into  relations  with 
one  another.  It  seeks  to  explain  these  phenomena  both  by 
mere  description  and  by  the  discovery  of  causal  relations 
3onnecting  them  together  ;  and  it  aims  to  show  ho\v  the 
true  welfare  of  a  nation  may  be  promoted  in  the  acquisition 
\nd  employment  of  material  good  things.  Technological 
treatises  on  agriculture,  mining,  manufactures,  electricity, 
show  how  an  individual  may  enrich  himself.  This  distinction 
must  not  be  misunderstood.  Technical  sciences  and  political 
vonomy  both  treat  of  society,  and  both  treat  of  individuals, 
Hit  the  technical  sciences  subordinate  the  social  stand-point 
while  political  economy  subordinates  the  individual  stand- 
point. Political  economy,  in  seeking  the  welfare  of  society, 
)f  course  must  aim  to  promote  the  welfare  of  the  great  mass 
if  individuals  and  families  in  the  nation  and  in  the  world, 
jut  that  is  something  different  from  the  welfare  of  a  particu- 
ar  individual  or  even  of  tlie  great  mass  of  men  at  a  given 
Boment.  Political  economy  looks  at  questions  from  the 
point  of  view  of  the  general  and  permanent  welfare. 


POLITICAL  ECONOMY  DEFINED.  97 

Political  Economy  Simpler  than  Private  Econ- 
omies.— It  may  be  well  in  this  place  to  make  clearer  some 
of  these  points  by  various  illustrations.  It  might  seem  a  far 
easier  thing  to  tell  how  John  Smith  could  secure  his  eco- 
nomic welfare  than  how  the  nation  of  which  lie  is  only  one 
member  may  become  prosperous,  but  such  is  not  the  case. 
Accidental  and  disturbing  causes  and  individual  peculiarities 
make  it  extremely  difficult  to  formulate  general  principles 
for  an  individual  private  economy,  but  these  irregular  ele- 
ments disappear  when  we  observe  a  large  mass  of  individual 
economies.  Mortality  serves  as  a  good  illustration.  No  one 
can  say  when  John  Smith  will  die.  The  chance  element  is 
so  pronounced  as  to  make  prediction  impossible.  Hut  when 
we  are  called  upon  to  make  calculations  upon  mortality 
among  several  millions  of  people  at  a  given  period  in  a  given 
country  it  becomes  a  comparatively  easy  matter.  Individual 
irregularities  become  social  regularities,  and  calculations  for 
great  masses  of  facts  of  this  kind  can  be  made  with  so  much 
accuracy  that  vast  business  transactions  like  those  connected 
with  insurance  can  with  safety  be  based  upon  them.  In  a 
nation  we  can  count  upon  a  regularly  recurring  amount  of 
inundations,  drought,  grasshopper  plagues,  and  similar  catas- 
trophes, accidents  to  the  persons  of  inhabitants  involving  a 
diminution  of  labor  power,  of  disease  and  death,  even  of 
theft,  robbery,  and  other  forms  of  wickedness,  vice,  and 
pauperism.  We  make  allowances  for  all  these  wealth- 
annihilating  factors,  and  consequently  they  do  not  disturb 
our  generalizations,  driven  a  country  like  the  United  States, 
a  fruitful  soil  and  all  other  desirable  physical  properties, 
a  population  on  the  whole  thrifty,  industrious,  temperate, 
moral,  intelligent,  and  enterprising,  a  tolerable  government 
whose  laws  are  in  the  main  obeyed,  and  we  know  to  a  cer- 
tainty that  the  country,  as  a  whole,  must  in  time  become 
very  wealthy,  and  in  its  economic  life  things  as  they  occur 
at  the  same  time,  that  is  to  say,  phenomena  in  their  co-exist- 
ence, are  observed  to  fall  into  great  classes  which  may  be 
described  and  explained,  and  things  as  they  occur  one  after 


93  AN  INTROD  UCTION  TO  POLITICAL  ECONOM T. 

the  other,  or  phenomena  in  their  succession,  are  likewise  ob- 
served to  do  so  in  some  kind  of  regular  order,  which  also 
may  be  described  and  explained. 

Let  us  suppose  that  we  seek  to  know  how  John  Smith 
may  acquire  wealth.  He  follows  general  principles,  but 
disease  and  death  at  an  early  stage  of  his  career  destroy  all 
his  property.  It  is  not  necessary  to  suppose  so  extreme  a 
case.  The  land  of  the  country  is  on  the  whole  fertile,  but  in 
some  way  or  another,  possibly  by  inheritance,  John  Smith 
may  be  the  owner  of  a  piece  of  poor  land  on  which  he  is 
obliged  to  struggle  for  a  bare  subsistence.  Ilis  farm  may  be 
fertile,  but  an  overflow  of  a  river,  such  as  has  not  been 
known  for  a  century,  sweeps  away  his  cattle,  buildings,  and 
the  year's  produce,  and  cripples  him  industirally  in  so  serious 
a  manner  that  he  never  recovers  from  it.  Instances  like  the 
following  have  fallen  under  the  author's  observation.  John 
Smith  is  a  clever  artisan,  receives  good  wages,  accumulates  a 
small  property,  which  he  is  induced  by  an  unscrupulous  man 
to  exchange  for  worthless  Western  lands.  lie  returns  to  his 
work  for  his  old  employers  to  begin  life  over  again  penniless. 
Others  may  learn  from  his  experience  to  be  more  suspicious 
of  plausible  men  with  Western  lands,  but  John  Smith  has 
lost  his  accumulations.  These  illustrations  can  be  continued 
indefinitely  by  the  reader,  and  observation  of  what  is  going 
on  about  him  every  day  will  furnish  him  with  numberless 
concrete  examples.  They  all  make  clear  the  statement  that 
it  is  far  easier  to  say  how  a  nation  may  become  prosperous 
than  how  a  particular  concrete  individual  may  secure  eco- 
nomic well-being. 

Private  not  Identical  with  Public  Welfare. — It  is 
said  that  political  economy  seeks  the  welfare  of  society.  The 
prosperity  of  individuals  may  be  secured  at  the  expense  of 
society,  for  it  by  no  means  follows,  as  superficial  writers 
have  assumed,  that  he  who  gains  wealth  has  added  that 
amount  of  wealth  which  he  secures  to  the  total  wealth  of 
the  country  or  of  the  world.  Lotteries  serve  as  one  of  the 
best  illustrations.  They  are  one  of  the  most  disastrous 


POLITICAL  ECONOMY  DEFINED.  99 

institutions,  both  as  regards  the  economic  welfare  and  the 
morals  of  a  community.  Large  numbers  in  the  industrial 
community,  especially,  perhaps,  among  the  poorer  classes,  as 
servant-girls  in  Germany,  may  be  turned  away  from  safe  and 
remunerative  investment  of  their  small  earnings,  in  the  ag- 
gregate large,  to  a  feverish  pursuit  of  chance-gain.  Society 
as  a  whole  loses,  but  proprietors  of  lotteries  have  been 
known  to  gain  large  fortunes. 

When  American  cities  have  given  away  or  been  robbed  of 
valuable  franchises  for  street-car  lines  individuals  have 
gained,  but  the  people  as  a  Avliole  have  lost.  Baltimore 
street-car  companies  pay  nine  dollars  out  of  every  hundred 
they  collect  for  the  maintenance  of  public  parks,  in  addition 
to  State  and  city  taxes.  Unscrupulous  politicians,  for  rea- 
sons best  known  to  themselves,  but  not  difficult  to  divine, 
have  desired  to  relieve  street-car  companies  of  this  very 
proper  although  inadequate  payment  for  valuable  privileges 
enjoyed.  This  would  add  to  the  wealth  of  individuals,  but 
would  injure  the  people  of  Baltimore  as  a  whole. 

Other  countries,  like  France  and  Austria,  have  limited  all 
charters  for  railways  to  periods  of  less  than  one  hundred 
years.  These  have  been  ac(\  pted  under  conditions  that,  with- 
out compensation,  the  entire  property  should,  at  the  expira- 
tion of  the  period,  revert  to  the  people  in  their  organic 
capacity;  that  is  to  say,  to  the  State.  Our  general  principle 
of  unlimited  charters  has  enriched  enormously  a  tew  indi- 
viduals, but  the  country  as  a  whole  is  correspondingly  poorer. 
One  other  illustration  must  suffice.  The  city  of  Chicago  owns 
and  operates  an  electric  lighting  plant,  and  the  cost  of  each 
arc  light  of  two  thousand  candle-power  burning  all  night  is 
said  to  be  about  fifteen  cents  a  night,  interest  on  the  invest- 
ment included.  If  Chicago  paid  fifty  cents  a  night  per  arc 
light  to  a  private  corporation,  as  does  the  city  of  Baltimore, 
a  few  individuals  would  grow  wealthy,  but  it  would  be  at  the 
expense  of  the  city.  It  is  the  business  of  the  political  econ- 
omist to  describe  the  best  means  for  the  promotion  of  the 
welfare  of  the  people  as  a  whole.  In  a  certain  sense,  the 


100  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

political  economist  is  to  the  general  public  what  the  attorney 
is  to  the  private  individual. 

Political  Economy  Regards  Permanent  Interests. 
— It  has  been  said  that  the  political  economist  must  have 
regard  to  permanent  interests.  He  may  call  upon  the  pres- 
ent generation  to  make  a  sacrifice  for  future  generations,  as 
did  the  city  of  Heidelberg  some  time  since,  when  it  passed 
over  to  the  system  of  "  high  forest-culture  ;"  that  is  to  say, 
when  it  decided  to  allow  a  large  part  of  the  extensive  forests 
it  owns  to  stand  until  the  trees  had  attained  their  full  size, 
and  that  means,  in  some  cases,  one  hundred  and  twenty 
years.  As  has  been  already  stated,  that  is  best  for  the  per- 
manent interests  of  the  city  and  nation,  but  it  put  aside  all 
prospect  of  financial  return  for  several  generations. 

Political  Economy  both  a  Dynamic  and  a  Static 
Science. — The  definition  of  political  economy  which  has 
been  adopted  calls  attention  to  the  actual  condition  of  indus- 
trial society  in  the  past  and  to  its  desirable  constitution  or 
structure  in  the  future.  Political  economy  embraces  both 
the  statics  and  dynamics  of  society.  The  one  treats  of  the 
interrelations  of  existing  economic  phenomena,  including 
their  causal  forces,  and  the  other  embraces  a  discussion  of 
the  progressive  movements  of  economic  society.  The  one 
considers  this  society  as  it  is,  the  other  inquires  how  it  has 
become  what  it  is  and  what  is  the  course  of  its  evolution  at 
present.  Statics  treats  of  forces  at  rest  or  in  a  state  of 
equilibrium  ;  dynamics  deals  with  changes  and  the  law  of 
changes,  and  what  John  Stuart  Mill  calls  their  ultimate 
tendencies. 

It  may  be  remarked  in  this  place  that  one  of  the  chief  errors 
of  the  uninstructed,  in  the  past  as  well  as  at  the  present,  con- 
sists in  the  failure  to  regard  political  economy  as  a  dynamic 
science  at  all  ;  and  this  has  led  to  a  false  and  dangerous 
view  of  society.  It  induces  men  to  try  to  stop  the  growth 
of  society,  which  is  about  as  safe  as  to  seal  tightly  the 
cover  of  a  boiler  of  boiling  water,  and  to  try  to  prevent 
thereby  the  expansion  of  steam.  Change  we  must  have; 


POLITICAL  ECONOMY  DEFINED.  101 

the  only  question  is,  What  will  be  the  nature  of  the  change  ? 
Growth  can  be  guided  and  directed  by  intelligence,  or  by 
what  Professor  Lester  F.  Ward,  in  his  Dynamic  Sociology, 
calls  ideological  action. 

Importance  of  our  Social  Ideals  in  the  Study  of 
Political  Economy. — This  naturally  leads  to  a  further  re- 
mark about  the  nature  of  economic  opinions.  At  the  outset 
of  any  earnest  study  of  political  economy  we  should  make  up 
our  minds  as  to  what  we  really  desire  for  society.  And  in  this 
respect  let  us  be  honest  with  ourselves.  Do  we  regard  all 
human  beings  as  brothers,  and  have  we  a  sincere  longing  for 
the  welfare  of  all  ?  Do  we  think  that  the  earth  and  all  the 
riches  of  art,  science,  literature,  and  industry  are  for  all,  to 
be  enjoyed  by  all  so  far  as  practicable  in  proportion  to  their 
real  needs  ?  Do  we,  in  short,  take  the  ethical  view  of  polit- 
ical economy  ?  Or  do  we,  on  the  contrary,  perhaps  without 
a  full  consciousness  of  the  fact,  hold  that  some  are  born  to 
subserve  the  gain  of  others  ?  Do  we  think  that  only  some 
of  us,  and  not  all  of  us,  have  talents  which  we  ought  to  im- 
prove; that  is,  to  develop  in  the  most  complete  manner  pos- 
sible all  faculties,  physical,  mental,  moral,  spiritual  ?  Are 
we  indeed  striving  to  protect  ourselves,  our  friends,  or  our 
class  in  special  privileges  ?  As  political  economy  has  to  do 
Avith  what  we  desire,  that  is,  as  it  is  teleological,  the  one 
aim  or  the  other  will  be  felt  in  all  economic  discussions, 
in  particular  in  so  far  as  they  relate  to  practical  measures. 
This  is  why  political  economists  in  all  countries  are  necessa- 
rily divided  into  two  more  or  less  antagonistic  groups,  dif- 
fering chietly  in  practical  aims,  and  as  that  part  of  political 
economy  is  more  concerned  with  such  aims,  in  the  dynamics 
of  political  economy- 
Ethical  Aims  an  Essential  Part  of  Economic 
Activity. —  Political  economy,  then,  distinctly  includes 
within  its  province  an  aim.  It  does  not  tell  us  merely  liow 
things  are,  but  also  how  they  ought  to  be.  Economists  deal 
with  human  activities,  and  these  must  have  a  purpose.  A 
purpose  is  not  something  accidental,  but  a  true  essential  part 


lOi  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

of  the  activity.  Then  we  may  compare  various  purposes  at 
the  present  time'  and  pronounce  some  praiseworthy  and 
Otters  reprehensible.  We  can  speak  of  actual  purposes  and 
of  desirable  purposes.  The  development  of  economic  life 
brinu*  or.c  clearly  the  significance  of  ethical  aims  in  industrial 
society  What  exists  now  as  a  mere  matter  of  course  was 
once  a  iuture  ideal,  or,  to  use  more  technical  language,  the 
•']&''  includes  what  was  once  the  "Ought-to-be."  The  ac- 
c,iusition  of  material  goods  by  robbery  has  for  ages  been 
neid  to  be  legitimate,  and  the  abolition  of  plunder  as  a 
so^ce  of  individual  gain  could  once  among  savages  have 
oee  >  only  an  ideal.  The  acquisition  of  material  goods  by 
force  of  arms  has  during  the  greater  part  of  the  world's  his- 
tory been  held  more  honorable  than  honest  toil,  and  in  the 
general  peaceful  pursuit  of  economic  well-being  we  have  in 
civilized  nations  only  recently  reached  an  ethical  goal  longed 
j'or  by  the  best  for  many  generations.  Slavery  has  until 
within  thirty  years  been  a  part  of  the  industrial  life  of  the 
United  States,  and  only  in  the  present  generation  have  we 
realized  in  its  abolition  an  ethical  goal  in  our  economic 
life.  Further  illustrations  will  on  reflection  occur  to  the 
reader.  Ethical  purposes  for  the  future  exist  now  as  they 
have  always  existed,  and  they  will  mold  our  economic  life. 

An  American  economist,  Professor  F.  II.  Giddings,  arrives 
at  the  same  conclusion  from  a  somewhat  different  starting- 
point.*  Political  economists  deal  with  the  actual,  he  says 
in  substance,  but  the  actual  contains  the  social  ideal,  because 
in  striving  for  the  realization  of  a  social  ideal  we  strive  to 
make  that  general  which  already  exists  as  something  excep- 
tional. Living  men  go  before  us  as  luminaries  to  show  us 
the  way.  They  are  our  ideal. 

The  "Is"  embraces  the  future  "  Ought,"  This  in  itself 
answers  the  question  whether  political  economists  should 
deal  merely  with  what  is,  or  also  with  what  ought  to  be. 
The  two  cannot  be  separated.  Also,  merely  to  know  what 
is  in  all  its  bearings  itself  often  shows  what  ought  to  be,  as 
*  See  his  Sociology  and  Political  Economy. 


POLITICAL  ECONOMY  DEFINED.  103 

in  the  case  of  the  evils  of  child  labor,  and  itself  suggests  a 
remedy  for  evils.  Another  reason  for  this  conclusion  is 
.  this :  we  want  to  know  what  ought  to  be  and  how  it  can 
be,  and  who  can  tell  us  so  well  as  lie  who  has  studied  what 
exists  and  the  processes  by  which  it  came  to  exist?  There 
is  no  separate  science  of  the  economic  "  ought,"  and  it  cer- 
tainly does  not  at  present  seem  desirable  to  separate  it  out 
as  something  distinct  from  political  economy. 

"  Is  Political  Economy  a  Science  ?  " — Political 
economy  has  been  spoken  of  as  a  science,  and  thus  far  no  at- 
tention has  been  paid  to  the  question  so  frequently  asked, 
"Is  political  economy  a  science?"  No  propriety  in  the 
question  is  perceived.  Science  means  systematized  knowl- 
edge with  regard  to  a  body  of  related  phenomena.  It  is  or- 
dered knowledge  with  definite  bounds,  taken  out  of  the 
great  sea  of  knowledge  because  it  pertains  to  groups  of 
facts  conceived  as  forming  a  whole,  as  therefore  more  closely 
connected  with  one  another  than  with  other  groups  of  facts. 
Science  is  a  branch  of  learning.  It  has  been  said  that  a  body 
of  knowledge  is  a  science  only  when  it  carries  with  it  the 
power  of  prediction  ;  but  there  can  scarcely  be  such  a  thing 
as  any  branch  of  learning  worthy  of  a  name  and  of  the  at- 
tention of  men  which  does  not  carry  with  it  more  or  less 
power  of  prediction,  how  much  cannot  be  known  until  it 
is  complete  and  finished.  Sciences  may  d  iff  IT  in  this  re- 
spect as  in  others  ;  some  may  be  very  imperfect,  others 
more  advanced,  and  still  others  in  a  condition  yet  nearer 
perfection. 

A  use  of  the  word  science  is  frequent,  in  England  and 
America,  which  implies  a  reproach  to  both  nations.  It  is 
used  as  equivalent  to  natural  science.  We  may  thus  hear  a 
school-girl  say,  u  I  am  studying  science,"  when  she  means 
some  branch  of  natural  science.  It  may  not  show  that  we 
have  given  too  much  attention  to  physical  sciences,  but  it 
does  clearly  prove  that  we  have  unduly  neglected  mental 
and  social  sciences  of  all  kinds.  It  is  in  the  minds  of  some 
Connected  with  that  materialistic  view  of  the  world  which 


104  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

refuses  to  admit  the  possibility  of  positive  knowledge  about 
tilings  which  cannot  be  seen,  handled,  and  weighed.  Why 
political  economy  is  less  worthy  to  be  called  a  science  than 
biology,  for  example,  is  hard  to  be  understood,  unless  it  is 
simply  that  it  is  less  advanced  toward  completion. 


Those  who  read  German  will  find  an  admirable  article 
bearing  on  topics  discussed  in  this  chapter  by  Professor 
Gustav  Schmoller  in  the  fifth  volume  of  his  Jahrbnch  filr 
Gesetzyebunfly  Verwaltunff,  und  Vblkswirtlischaft.  It  is  enti- 
tled, "Die  Gerechtigkeit  in  der  Volkswirthschaft."  Professor 
Gustav  Colin  has  also  suggestive  remarks  which  have  been 
helpful  to  the  author  in  the  "  Einleitung  "  to  his  System  der 
National  Oekonomie,  Kapitel  I,  "  Gesetze  der  National  Oe- 
koiiomie,"  s.  69-78. 


CHAPTER  XI. 

OTHER  DEFINITIONS  OF  POLITICAL  ECONOMY. 

Three  Classes  of  Definitions. — Conceptions  of  political 
economy  may  be  divided  into  three  classes,  and  definitions 
may  he  formed  to  fit  each  class  of  conceptions.  Writers 
frequently  fail  to  describe  accurately  their  conceptions  of 
the  nature  of  political  economy  in  their  definitions,  but  they 
may  be  divided  into  classes  according  to  their  fundamental 
ideas  respecting  the  scope  and  purpose  of  political  economy, 
whether  they  have  accurately  expressed  these  in  their  defini- 
tions or  not. 

Writers  of  the  first  class  regard  political  economy  as  a 
science  which  has  to  do  with  external  valuable  things  or 
economic  goods — that  is,  with  wealth,  as  that  word  is  used 
by  economists  ;  writers  of  the  second  class,  as  the  science 
which  has  to  do  with  economic  goods  in  their  relations  to 
man;  writers  of  the  third  class,  as  the  science  which  has  to  do 
with  man  in  his  relations  to  economic  goods.  The  logica 
evolution  is  observed.  Economic  goods  arc  first  made  the 
primary  thing,  and  they  are  treated  almost  as  if  their  pro- 
duction was  an  independent  process  apart  from  the  will  of 
man,  one  extreme  writer  going  so  far  as  to  say  that  the  laws 
governing  the  production  of  wealth  would  be  just  what  they 
are  if  man  did  not  exist.  The  social  relations  involved 
in  the  production  and  consumption  of  economic  goods  are 
then  considered  more  carefully,  and  finally  the  original  process 
is  reversed,  and  it.  is  distinctly  asserted  that  "the  starting- 
point  as  well  as  the  object-point  of  our  science  is  man."' 

The  definition  of  political  econoniv  found  in  Mrs.  Faw- 
cett's  little  I*<jliti<'«l  Economy  mav  be  taken  as  a  fair  pres- 
*  Roscher's  Political  Economy,  vol.  i  of  Lalor's  translation,  p.  52. 


106  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

entation  of  the  first  class  of  conceptions.  It  is  as  follows: 
"  Political  economy  is  the  science  which  investigates  the 
nature  of  wealth  and  the  laws  which  govern  its  production, 
exchange,  and  distribution." 

The  definition  of  political  economy  found  in  John  Stuart 
Mill's  treatise  may  be  taken  as  a  tolerably  accurate  presen- 
tation of  the  second  class  of  conceptions.  "  Writers  on  po- 
litical economy,"  says  Mill,  "  profess  to  teach  or  investigate 
the  nature  of  wealth  and  the  laws  of  its  production  and  dis- 
tribution, including  directly  or  remotely  the  operation  of  all 
the  causes  by  which  the  condition  of  mankind  or  of  any  so- 
ciety of  human  beings  in  respect  to  this  universal  object  of 
human  desire  is  made  prosperous  or  the  reverse."  Social 
relations  are  dragged  in  through  a  back  door,  as  it  were.  It 
is  perceived  that  political  economy  must  concern  itself  with 
them,  but  they  are  not  at  once  placed  in  the  foreground  as 
the  main  thing  with  which  we  are  to  deal.  Mill's  position  is 
perhaps  brought  out  still  more  clearly  in  the  full  title  of  his 
work,  which  is,  Principles  of  Po!iti<-<d  Il-onounj,  iritk  Some 
of  their  Applications  to  Social  Philosophy.  Social  philoso- 
phy is  evidently  viewed  as  something  outside  of  political 
economy  rather  than  as  a  larger  whole  of  which  political 
economy  is  only  a  part. 

Professor  Henry  C.  Adams,  of  the  Univcrsitv  of  Michigan, 
in  the  second  edition  of  his  Outlines  of  Lectures  iipon  Polit- 
ical Economy,  offers  a  statement  about  political  economy 
which  may  be  placed  among  definitions  of  political  economy  as 
it  is  understood  by  those  who  hold  the  third  class  of  con- 
ceptions, although  he  himself  does  not  call  his  statement  a 
definition.  It  is  as  follows:  "  Political  economy  treats  of 
industrial  society.  Its  purpose  as  an  analytic  science  is  to 
explain  the  industrial  actions  of  men.  Its  purpose  as  a  con- 
structive science  is  to  discover  a  scientific  and  a  rational 
basis  for  the  formation  and  government  of  industrial  so- 
ciety." 

While  the  wording  of  not  all  definitions  is  such  as  to  place 
them  clearly  in  any  one  of  these  three  classes  of  conceptions, 


OTHER  DEFINITIONS  OF  POLITICAL  EC 'ONO JIT.  107 

and  while  all  political  economists  are  not  true  to  the  concep- 
tion expressed  in  their  own  definition,  economists  themselves 
may  be  arranged,  in  a  rough  sort  of  way,  at  least,  under  one 
or  the  other  of  the  classes  corresponding  to  the  conceptions, 
and  thus  divided  into  three  groups.  There  may  be  more  or 
less  shifting  of  stand-point  and  wavering  of  conception,  and 
certain  economists  may  stand  near  the  boundary  line  of  two 
conceptions. 

The  Growth  of  Political  Economy. — The  order  in 
which  the  definitions  have  been  given  shows  the  evolution 
of  our  science.  It  has  grown  from  the  first  conception  to 
tin'  second,  and  then  from  the  second  to  the  third,  and 
with  this  growth  the  character  of  political  economy  itself 
lias  changed  somewhat.  The  words  political  economy  do 
not  mean  now  precisely  what  they  did  once.  But  this  evo- 
lution of  economic  science  has  not  been  strictly  a  chrono- 
logical one.  It  has  been  rather  a  logical  one,  and  the  most 
we  can  say  is  that  in  the  main  the  chronological  movement 
has  corresponded  with  the  logical  development  of  the  science. 
Political  economists  did  not  adopt  definitions  of  the  first 
class,  then  of  the  second,  and  finally  of  the  third.  It  may 
be  slated  more  correctly  in  this  way:  Beginning  with  this 
century  tin-si.'  various  conceptions  or  ideas  of  political  econ- 
omy have  been  engaged  in  a  contest.  At  first  definitions 
of  the  first  class  embodied  the  prevailing  conception,  then 
definitions  of  the  second  class,  and  now  definitions  of  the 
third  class.  But  there  has  always  been  some  one  of 
prominence  to  challenge  the  prevailing  conception.  Thus, 
early  in  this  century,  Sismondi,  the  Swiss  economist,  defined 
political  economy  as  "  the  science  of  human  happiness,"  and 
Malthas,  his  friend,  the  distinguished  English  economist, 
subordinated  wealth  as  a  secondary  consideration  to  the  wel- 
fare of  man  as  the  primary  consideration,  opposing  those  who 
treated  public  questions  merely  from  the  stand-point  of 
pounds,  shillings,  and  pence.  lie  regarded  political  economy 
as  the  science  of  wealth  in  its  relations  to  man,  emphasizing 
strongly  the  latter  part  of  the  conception.  While  the  pre- 


108  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

vailing  conception  of  political  economy  at  tlie  present  time  is 
presented  fairly  well  in  the  definitions  of  Professor  Adams, 
Professor  von  Scheel,  and  the  author,  it  is  also  contested  by 
those  who  adhere  to  definitions  of  the  first  class. 

Political  Economy  and  a  Natural  Beneficent  Order. 
—The  first  conception  of  political  economy  may  be  traced 
back  to  French  writers  of  the  second  halt' of  the  eighteenth 
century,  called  the  Physiocrats,  usually  regarded  as  the 
founders  of  the  science  because  they  were  the  first  to  try  to 
treat  national  ecojiomic  life  in  its  entirety  in  a  rounded-out, 
systematic  manner.  It  is  closely  connected  with  ideas  con- 
cerning a  beneficent  external  order  of  nature  which  domi- 
nated the  political  philosophy  of  the  time  of  the  French 
Revolution.  Nature  was  regarded  as  a  power  outside  of 
man,  who  had  drawn  up,  as  it  were,  a  code  for  the  entire 
conduct  of  the  individual  and  social  life  of  man.  Nature 
was  looked  upon  as  wholly  good,  and  all  the  evil  in  the  world 
was  traced  to  man,  who,  although  a  product  of  nature,  and 
good  in  his  essence,  yet  somehow  had  managed  to  act  con- 
trary to  his  being  and  to  otherwise  universal  law,  and  had  pro- 
duced all  sorts  of  evil  institutions.  There  was  then  a  constant 
cry,  most  loudly  uttered  by  Jean  Jacques  Rousseau,  "Back 
to  Nature."  Government  was  held  responsible  for  most  of 
the  sufferings  of  humanity  because  it  was  an  artificial  prod- 
uct of  man's  contriving,  and  hence  some  wished  to  abolish 
government  altogether,  while  others  advocated  the  reduction 
of  its  functions  to  a  minimum,  and  gave  as  the  watchword, 
"Laissez-faire"  that  is,  let  alone,  do  not  interfere  with  this 
beneficent  order  of  nature.  Now  space  is  too  limited  to 
permit  the  author  in  this  place  to  trace  this  theory  of  nat- 
ural law  back  through  medieval  writers  to  Roman  juris- 
prudence and  thence  to  Greek  philosophy,  nor  can  it  here  be 
shown  how  full  of  contradictions  and  absurdities  it  was,  but 
it  will  readily  be  understood  how  it  led  to  the  first  concep- 
tion of  political  economy.  Nature  had  established  laws  ex- 
ternal to  man  for  the  production,  distribution,  and  consump- 
tion of  economic  goods,  and  it  only  remained  for  man  to 


OTHER  DEFINITIONS  OF  POLITICAL  ECONOMY.  109 

discover  these,  and  to  conform  to  them  in  all  his  actions. 
Gradually,  however,  it  became  more  and  more  apparent  to 
thinkers  that  the  conception  of  economic  goods,  or  wealth, 
to  employ  the  more  usual  term,  was  itself  a  subjective  term ; 
that  wealth,  properly  speaking,  could  not  exist  apart  from 
the  needs  and  desires  of  man,  although  material  things 
might,  and  that  the  will  of  man  was  a  main  factor  in  all 
economic  life.  It  was  seen,  moreover,  that  progress  consisted 
not  in  blind  subjection  to  external  natural  laws,  but  in  a  con- 
quest and  subjugation  of  wild  nature.  The  conception  of 
political  economy  has  accordingly  been  modified  until  finally 
man  is  made  the  beginning  and  end  of  all  inquiries,  and 
nature  is  regarded  as  his  servant. 

The  Mercantilists. — Curiously  enough,  the  most  mod- 
ern conception  of  political  economy  is  a  return  to  an  older 
and  sounder  one,  cut-rent  before  the  domination  of  the  polit- 
ical and  social  ideas  of  the  French  Revolution.  The  econo- 
mists called  the  Mercantilists,  the  forerunners  of  the  Physi- 
ocrats, made  their  inquiries  center  about  legislation  and 
human  activity,  and  to  them  political  economy  was  the  art 
of  the  statesman  in  its  economic  aspects.  The  speculations 
of  the  Mercantilists  culminated  in  the  Political  Economy  of 
Sir  Jaiiu-s  Steuart,  published  in  1767,  nine  years  before 
Adam  Smith's  Wealth  of  Nations,  and  in  that  we  find  this 
definition  of  political  economy,  in  which  the  old  spelling, 
pointing  to  the  origin  of  the  word,  is  still  retained  :  ''(Econ- 
omy in  general  is  the  art  of  providing  for  all  the  wants  of 
a  family  with  prudence  and  frugality.  .  .  .  What  (economy 
is  in  a  family,  political  (economy  is  in  a  State.  .  .  .  The  great 
art,  therefore,  of  political  (economy  is  first  to  adapt  the  differ- 
ent operations  of  it  to  the  spirit,  manners,  habits,  and  customs 
of  the  people,  and  afterward  to  model  these  circumstances  so 
as  to  be  aide  to  introduce  a  set  of  new  and  more  useful  insti- 
tutions. The  principal  object  of  this  science  is  to  secure  a 
certain  fund  of  subsistence  for  all  the  inhabitants,  to  obviate 
every  circumstance  which  may  render  it  precarious,  to  provide 
every  thing  necessary  for  supplying  the  wants  of  the  society, 


110  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

and  to  employ  the  inhabitants  (supposing  them  to  be  free- 
men) in  such  a  manner  as  naturally  to  create  reciprocal  rela- 
tions and  dependencies  between  them,  so  as  to  make  their  sev- 
eral interests  lead  them,  to  supply  one  another  with  their 
reciprocal  wants." 

The  fine  historical  sense  disclosed  in  Steuart's  definition, 
contrasting  with  the  abstract  speculations  of  the  French, 
should  be  noticed.  Institutions  must  first  be  made  to  con- 
form to  the  genius  of  a  nation,  and  then  spirit,  habits,  and 
customs  of  the  nation  must  be  so  modified  that  new  and 
better  institutions  can  be  introduced.  It  is  not  possible  to 
disregard  the  past,  and  to  legislate  as  if  that  did  not  exist. 

Different  Conceptions  of  Man  and  External  Nat- 
ure.— Political  economy  occupies  a  middle  ground  between 
natural  sciences  and  mental  sciences.  It  deals  with  man, 
but  with  him  in  relation  to  external  nature,  furnishing  him 
with  material  for  goods  to  supply  his  wants.  It  must  pre- 
suppose the  existence  of  natural  physical  laws,  not  at  all  the 
product  of  human  volition.  Some  writers  have  been  inclined 
to  overlook  the  part  of  external  nature  in  economic  life,  and 
consequently  to  go  to  an  extreme  in  their  conceptions  of 
political  economy.  Starting  with  definitions  which  overlook 
man  we  finally  come  to  definitions  which  overlook  the  phys- 
ical universe  outside  of  man.  Professor  de  Laveleye,  in  his 
Political  Economy,  gives  a  definition  which  may  serve  as  an 
illustration  :  "Political  economy  is  the  science  which  deter- 
mines what  laws  men  ought  lo  adopt  in  order  that  they  may, 
with  the  least  possible  exertion,  procure  the  greatest  abun- 
dance of  things  useful  for  the  satisfaction  of  their  wants, 
may  distribute  them  justly  and  consume  them  rationally." 

Professor  de  Laveleye  himself  is  not  true  to  his  defini- 
tion, for  he  discusses  many  things  which  do  not  by  any 
means  exclusively  pertain  to  legislation. 


CHAPTER  XII. 

MAIN  PARTS  OF  POLITICAL  ECONOMY. 

POLITICAL  economy  has  become  so  large  a  science  that  it 
has  been  found  desirable  to  divide  it  into  parts,  each  of 
which  is  often  treated  in  separate  works  or  volumes  of  the 
same  work.  Sometimes  each  one  of  the  great  parts  is  treated 
almost  like  a  separate  science.  Sociology  has  been  spoken 
of  as  a  group  of  sciences.  With  the  evolution  of  political 
economy  it  also  is  beginning  to  assume  the  appearance  of 
a  group  of  sciences,  although  this  evolution  cannot  go  so  far 
on  account  of  the  much  smaller  range  of  political  economy. 
The  connection  between  the  main  parts  of  political  economy 
has  so  far  been  well  preserved,  and  their  unity  in  the  larger 
whole  rarely  escapes  the  consciousness  of  the  student. 

Political  economy  is  most  commonly  divided  into  three 
parts.  The  first  is  concerned  with  general  principles.  This 
should  properly  include  an  outline  review  of  the  entire  sub- 
ject, the  parts  of  which  may  be  further  elaborated  later.  The 
second  part  deals  with  the  detailed  practical  application  of 
general  principles,  as  in  the  discussion  of  forests,  canals,  rail- 
ways, banks,  and  the  sphere  of  the  Slate  with  reference  to 
these  economic  factors.  The  third  part  treats  of  finance; 
that  is  to  say,  the  collection  and  administration  of  public 
revenues,  taking  up  a  discussion  of  the  various  sources  of 
the  revenue,  as  productive  property,  taxes,  and  loans,  and 
entering  into  an  examination  of  public  debts  with  reference 
to  their  origin,  growth,  management,  and  extinction. 

General  Political  Economy. — These  parts  of  political 
economy  are  given  different  names.  The  first  part  is  some- 
times called  theoretical  political  economy,  but  this  is  objec- 
tionable. It  is  as  practical  as  any  part,  as  practical,  in  fact, 


112          AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

as  the  foundation  of  a  house.  This  first  part  takes  account 
of  such  practical  matters  as  the  functions  of  government. 
But  there  are  certain  main  facts  in  economic  lile  more  gen- 
eral, more  nearly  universal  than  others,  and  these  can  be  ad- 
vantageously treated  by  themselves  before  certain  topics  are 
taken  out  of  their  connection  for  more  careful  special  inves- 
tigation. This  first  division  of  political  economy  we  may 
call  general  political  economy,  or  general  economic*.  Under 
this  head  we  discuss  definitions  and  general  conceptions, 
land,  labor,  capital,  rent,  wages,  profit,  money,  interest,  the 
organization  of  industry.  This  part  of  political  economy  is 
nearly  all  we  find  in  the  older  text-books. 

Special  Political  Economy.— The  second  part  of  polit- 
ical economy  may  be  called  special  political  economy  or 
simply  special  economics.  "When  the  first  part  is  unfortu- 
nately called  theoretical  political  economy  this  is  also  unfort- 
unately called  practical  political  economy.  This  second 
part  is  called  economic  administration  in  the  great  work 
edited  by  Schonberg,  "Z)as  llandbuch  der  Politischen  Oekon- 
omie." 

Finance. — The  third  part  is  always  cn\\c<\  finance. 

Other  divisions  of  political  economy  into  main  parts  are 
not  unusual  wherever  the  specialization  of  the  sciences  is 
carried  far.  Professor  "Wilhelm  Roscher,  of  the  University 
of  Leipzig,  published  the  first  volume  of  a  great  treatise 
thirty-five  years  ago,  and,  working  on  it  ever  since  with  Ger- 
man thoroughness  and  perseverance,  has  nearly  completed 
the  last  ofhis  four  volumes.  The  following  are  the  titles  of 
the  volumes  :  1.  General  Political  Economy.  %.  Agriculture 
and  Other  Branches  of  Industry  Concerned  with  the  Produc- 
tion of  Raw  Material.  This  includes,  among  topics  discussed, 
forestry,  care  of  grain,  pastures,  agricultural  laborers,  breed- 
ing of  animals.  :j.  Commerce  and  Manufactures.  &.  Finance 
and  Care  of  the  Poor. 

Professor  Adolph  Wagner,  of  the  University  of  Berlin, 
published  in  187'2  the  first  volume  of  a  revised  edition  of 
an  older  work  on  political  economy,  by  Professor  Ran,  of 


MAIN  PARTS  OF  POLITICAL  ECONOMY.  1 13 

Heidelberg,  who  was  in  his  day  the  most  distinguished  econo- 
mist of  Germany;  and  in  1877  he  published  a  new  edition  of 
the  second  volume  of  the  same  work.  When  a  later  edition 
of  Professor  Wagner's  revised  volumes  was  called  for  it  be- 
came apparent  that  Rau's  name  could  no  longer  be  retained, 
because  changes  in  the  revision  grew  so  numerous  and  far- 
reaching  in  character  that  it  became  substantially  a  new  work. 
This  work  by  Professor  Wagner  is  still  going  forward,  and 
as  planned  it  will  comprise  at  least  seven  volumes,  and  in  all 
probability  more.  It  is  the  most  extensive  as  well  as  the 
profoundest  economic  treatise  ever  written.  The  work  is 
divided  into  three  main  parts,  and  each  of  them  is  subdi- 
vided into  volumes,  as  follows  :  1.  The  first  main  part  is 
general  or  theoretical  political  economy.  This  part  is  divided 
into  two  volumes,  the  first  called  Fundamental  Principles,  and 
the  second  General  Political  Economy,  icith  /Special  Reference 
to  the  /Si/stem  of  Private  Economies.  2.  The  second  main  part 
bears  the  title,  Special  or  Practical  Political  Economy,  and  is 
likewise  divided  into  two  volumes,  the  first  called  Cleans  of 
Transportation  and  Communication,  and  the  second,  Public 
Policy,  with  respect  to  Agriculture,  Manufactures,  and  Com- 
merce. 3.  Part  third  is  called  Finn  nee,  and  is  divided  into 
three  volumes  ;  namely,  first,  Introduction  and  (General  Con- 
siderations Concerning  the  Mnan<-i<d  K-ononuj  of  the  titate ; 
second,  Fees  and  General  Theory  <>f  Taxation  ;  third,  Speciul 
Theory  of  Taxation  and  Pi//>li<'  J)el/tx.  The  third  volume 
of  the  part  on  finance  will  be  devoted  largely  to  practical 
application  of  general  principles. 

Of  this  immense  work  three  volumes,  the  first,  fifth,  and 
sixth,  have  appeared,  and  the  seventh  is  at  the  time  of  the 
preparation  of  this  book  being  issued  in  parts. 

The  proper  division  of  an  economic  treatise  seems  to  be, 
as  already  indicated,  into  a  first  part,  containing  a  general 
view  of  the  life  of  the  socio-economic  organism  in  all  its 
parts,  and  then  an  elaboration  of  some  of  these  parts,  and 
in  this  elaboration  the  needs  of  the  public  will  be  a  guide. 
Anyone  of  the  leading  parts  of  a  general  economic  treatise 


114  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

could  be  enlarged  into  a  volume,  and  this  has  been  done  with 
many  of  them.  This  will  appear  clearer  if  we  examine  the 
subdivisions  of  treatises  on  general  economics. 

Treatises  on  general  economics  are  quite  generally  divided 
into  four  parts  or  books,  called,  1.  Production — that  is,  the 
creation  of  utilities.  2.  Distribution — that  is  to  say,  a  dis- 
cussion of  the  ultimate  share  which  each  person  receives  of 
what  is  produced;  or,  as  we  might  perhaps  say  with  a  tolera- 
ble degree  of  exactness,  the  amount  of  income  of  the  various 
members  of  industrial  society.  3.  Exchange — perhaps,  still 
better,  the  Transfers  of  Goods;  sometimes  also  the  Circulation 
of  Goods.  4.  Consumption  of  Goods.  Part  4,  though  indi- 
cating the  purpose  for  which  all  economic  activity  takes 
place,  is  sometimes  omitted. 

If  we  speak  of  these  divisions  of  political  economy  into 
parts  as  perpendicular,  we  could  call  its  division  into  eco- 
nomic dynamics  and  economic  statics  a  horizontal  division. 
It  cuts  across  all  the  others.  John  Stuart  Mill,  however, 
who  gives  too  little  attention  to  economic  dynamics  in  gen- 
eral, has  one  book  on  this  subject  in  his  political  economy. 
It  is  entitled,  Influence  of  Pi-oyress  of  Society  on  Production 
and  Distribution.  Mill  has  no  book  on  consumption,  but  his 
fifth  book  is  on  the  Influence  of  Government. 

Professor  Gustnv  Cohn  has  divided  his  General  Political 
Economy,  the  first  volume  of  an  exhaustive  treatise,  into  an 
Introduction,  treating  of  scientific  method,  of  the  relation 
of  political  economy  to  other  sciences,  of  the  history  of 
political  economy,  and  of  fundamental  conceptions,  and  into 
the  System  of  Economic  Life.  The  Svstem  of  Economic 
Life  treats  (1)  of  the  Elements  of  Economic  Life — namely, 
population,  nature,  labor,  capital;  (2)  the  Structure  of  the 
Economic  Life — including  the  ordering  of  the  common  life, 
the  forces  connecting  the  members  of  the  social  body,  such 
as  competition,  association,  private  and  collective  property, 
the  differences  in  society,  and  groups  in  the  social  body; 
('•'>)  Processes  of  Economic  Life — namely,  production,  trans- 
fers of  goods,  and  distribution  of  income. 


MAIN  PARTS  OF  POLITIC  A  L  ECONOMY.  1 15 

It  will  be  readily  seen  that  a  topic  like  population  can  be 
treated  in  an  independent  work,  and  it  has  been  so  treated 
by  Malthus,  a  great  English  economist.  Land,  and  the  price 
paid  for  its  use,  called  rent,  may  also  be  treated  in  an  in- 
dependent work.  An  American  economist,  President  Francis 
A.  Walker,  has  written  a  book  called  Land  and  Its  Rent. 
Capital,  another  factor  in  production,  has  been  made  the 
title  of  an  important  work  by  Carl  Marx,  the  German  so- 
cialist. The  present  work  follows  a  plan  which  is  new  in 
some  respects,  particularly  in  the  division  of  space  assigned 
to  the  various  topics  discussed.  The  author  aims  to  give 
his  readers  an  insight  into  the  real  significance  of  political 
economy,  and  a  general  view  of  the  entire  ground,  whereby 
it  is  hoped  that  many  will  be  led  to  continue  their  economic 
studies  further.  A  large  part  of  the  book  is,  of  design,  de- 
scriptive. 


CHAPTER   XIII. 

ECONOMIC     METHODS. 

METHODS  whereby  knowledge  is  acquired  are  properly 
discussed  in  logic,  but  as  a  familiarity  with  logic  cannot  be 
assumed,  as  there  is  frequent  change  in  logical  treatises, 
and  as  there  is  a  lack  of  unanimity  of  opinion  about  the 
proper  method  for  mental  and  social  sciences,  a  short  chapter 
must  be  devoted  to  a  discussion  of  methods  suitable  for  the 
discovery  of  economic  truth. 

Logicians  have  usually  spoken  of  all  methods  for  the  ac- 
quisition of  knowledge  as  either  deductive  or  inductive,  but 
recently  a  third  method,  the  statistical,  has  been  assigned 
an  equal  rank,  and  it  has  been  claimed  that  the  statistical 
method  is  the  one  peculiarly  adapted  to  the  study  of  all  the 
social  sciences. 

The  Deductive  Method  means  reasoning  from  the  gen- 
eral to  the  particular.  The  most  familiar  illustration  is  this: 
All  men  are  mortal;  John  is  a  man;  therefore,  John  is  mortal. 
We  begin  with  a  statement  respecting  a  class,  we  see  that 
a  particular  individual  belongs  to  this  class,  and  then  we 
assert  that  what  is  true  of  the  class  is  true  of  the  individual. 
This  is  self-evident.  This  kind  of  reasoning  is  often  called 
in  colloquial  English  "putting  two  and  two  together." 

Inductive  Method. — Xow,  inductive  reasoning  reverses 
the  process.  It  finds  that  certain  things  arc  true  of  an  in- 
dividual which  by  observation  is  declared  to  be  a  fair  type 
of  a  class,  and  then  what  is  true  of  the  individual  is  said  to 
be  true  of  the  entire  class.  It  is  seen  that  John  dies.  John 
is  mortal.  Observation  shows  that  James,  Richard,  Robert, 
and  others  likewise  die.  Observation  as  reported  in  history 
tells  us  of  no  man  who  has  not  died.  We  s:iy  then  John  is 


ECONOMIC  METHODS.  117 

a  typical  man,  and  we  conclude  that  all  men  are  mortal. 
These  two  methods  manifestly  supplement  each  other. 

Statistical  Method. — But  when  we  mass  together  large 
numbers  of  facts  about  the  lite  of  man  as  a  member  of  soci- 
ety, in  other  words,  social  phenomena,  we  observe  certain 
regularities  among  them.  No  one  of  them  can  be  taken  as 
a  type,  yet  we  can  arrange  and  group  them  and  gather  in- 
formation about  them.  Suicides  serve  as  an  excellent  illus- 
tration. What  could  appear  to  be  less  regular  than  the 
means  adopted  by  human  beings  to  put  an  end  to  their  own 
lives?  Yet  when  we  study  a  large  number  of  cases,  say 
thousands,  we  find  that  a  certain  proportion  in  each  hundred 
will  hang  themselves,  another  proportion  will  poison  them- 
selves, another  proportion  will  drown  themselves,  etc.,  etc. 
Likewise  we  discover  a  regularly  recurring  proportion  be- 
tween men  and  women.  We  find  that  a  certain  percentage 
will  choose  a  rainy  day,  another  percentage  a  clear  day;  a 
certain  percentage  will  be  married,  another  percentage  un- 
married. 

Mortality  in  general  serves  as  an  excellent  illustration,  and 
this  has  in  another  connection  already  been  cited.  It  is  not 
easy  to  tell  whether  Robert,  aged  forty,  will  die  during  the 
next  twelve  months,  but  it  is  easy  to  tell  how  many  men  among 
a  hundred  thousand  aged  forty  in  a  particular  country  will 
die.  The  observation  of  these-  regularities  in  large  masses 
of  facts,  and  the  acquisition  of  knowledge  thereby,  is  called 
the  use  of  the  statistical  method. 

Deductive  School. — Economists  during  the  first  half  of 
this  century  generally  made  use  of  what  they  called  the  de- 
ductive method.  They  started  with  a  few  general  proposi- 
tions afforded  them  by  their  own  consciousness  or  by  obser- 
vation of  familiar  facts,  or  by  other  sciences,  and  sought  to 
explain  the  economic  life  of  man  thereby.  One  of  these 
general  propositions  is  the  assumption  that  the  main  mo- 
tive, almost  the  exclusive  motive,  and  the  only  one  to  be 
taken  into  account  in  reasonings  respecting  economic 
life,  is  self-interest.  Manifestly,  if  we  can  assume  that  men 


118  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

are  always  actuated  by  self-interest  it  is  only  necessary  to 
find  out  where  self-interest  will  lead  to  predict  the  course 
which  they  will  pursue.  Undoubtedly,  this  throws  a  flood  of 
light  on  economic  phenomena  and  explains  many  of  them. 

A  second  general  proposition  found  in  the  writings  of  the 
older  deductive  economists  is  this:  population  tends  to  in- 
crease faster  than  the  means  of  subsistence. 

A  third  proposition  asserts  that  capital  increases  the  pro- 
ductivity oflabor,  and  that  further  accumulations  of  capital 
may  be  made  which  will  increase  indefinitely  the  amount  of 
economic  goods  annually  produced. 

A  fourth  proposition  asserts  what  is  called  the  "  law  of 
diminishing  returns;"  which  means  that  after  a  certain  amount 
of  labor  and  capital  have  been  applied  to  agricultural  land 
it  does  not  pay  to  apply  more,  because  the  return  will  not  be 
in  proportion  to  increased  outlay.  It  m;iy  pay  to  hoe  corn 
three  times,  but  not  four  or  five  times.  The  economist  who 
formulated  these  propositions  said  that  political  economy  is 
not  eager  to  gather  facts,  because  these  general  propositions 
explained  all  facts  of  the  socio  economic  organism. 

The  deductive  method  is  also  called  a  priori,  and  we  often 
hear  of  fi  priori  economics. 

The  Historical  School.— About  the  middle  of  this  cent- 
ury there  arose  in  Germany  a  stronger  and  more  vigorous 
protest  against  the  deductive  method  than  ever  before. 
Isolated  voices  had  been  raised  against  it  previously.  An 
English  economist  *  had,  about  1830,  claimed  that  we  could 
not  out  of  our  own  inner  consciousness  with  the  aid  of  a  feu- 
general  propositions  explain  the  complex  phenomena  of  the 
socio-economic  organism,  and  said  if  we  would  know  how 

O  ' 

men  live  we  must  "  look  and  see."  Other  economists  had 
given  utterance  to  similar  opinions,  but  they  had  not  been 
heard.  But  three  gifted  men  in  Germany,  Carl  Knies,  Wil- 
helm  Roscher,  and  Bruno  Ilildebrand,  all  university  profes- 
sors, coming  forward  with  what  they  called  the  liiatoricdl 

*  Rev.  Richard  Jones,  in  his  book,  The  Distribution  of  Wtaltli  and  Hie  Soarces 
of  Taxatiun. 


ECONOMIC  METHODS.  119 

method,  made  quickly  an  impression  in  their  own  country,  and 
their  influence  lias  gradually  spread  throughout  the  civilized 
world. 

We  ought  rather  to  speak  of  an  historical  school  than  his- 
torical method.  The  term  is  used  in  a  broad  sense.  It  is 
better  than  inductive,  because  it  includes  much  more  than 
induction.  The  name  historical  is  not  accurate,  but  it  is  taken 
from  one  prominent  characteristic  of  the  school.  Men  of  the 
historical  school,  believing  in  observation,  regarded  the  past 
experience  of  man  in  history  as  a  valuable  source  of  infor- 
mation. Men  had,  they  claimed,  been  conducting  experiments 
in  their  economic  life  during  their  entire  past  existence  on 
this  earth,  and  they  had  recorded  the  results  of  their  experi- 
ments with  more  or  less  accuracy.  History  was  considered 
then  as  a  proper  field  for  observation.  At  the  same  time  it 
was  never  claimed  that  history  alone  was  sufficient  to  enable 
ns  to  construct  a  science  of  political  economy.  Other  nations 
were  to  be  studied,  and  hence  we  find  the  expression  compar- 
ative method.  Generalization  from  large  inductions  of  facts 
was  advocated,  and  we  accordingly  encounter  the  term  sta- 
tistical method. 

But  this  is  not  all  that  is  meant  by  the  tendency  designated 
as  historical  school,  less  accurately  described  as  historical 
method.  The  expression  historical  school  meant,  and  still 
means,  many  tilings.  Perhaps  it  primarily  signifies  a  pur- 
pose or  even  a  philosophy  of  life.  The  ethical  aim  comes 
first.  Most  marked  among  the  characteristics  of  the  histor- 
ical school  of  political  economv  is  the  supremacy  ascribed  to 
ethics.  To  the  demands  of  ethics,  it  is  felt,  should  the  entire 
economic  life  be  made  subservient.  The  historical  school 
means  a  broad,  progressive  spirit.  It  carries  with  it  a  differ- 
ent view  of  the  State.  The  attitude  of  the  philosophers  of 
the  period  of  the  French  Revolution  is  rejected.  The  State 
is  held  simply  to  mean  a  co-operative  commonwealth.  The 
historical  school  in  its  spread  over  the  world  may  be  termed 
a  wave  of  humanitarianism.  It  has  both  a  negative  and  a 
positive  meaning.  It  means  rebellion  against  the  old,  at 


120  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

first,  naturally,  strongly  pronounced,  and  a  constructive  effort 
toward  improvement. 

This  prepares  us  better  to  return  to  modern  methods.  The 
historical  school  is  catholic  as  to  methods.  All  methods  are 
used.  Undoubtedly  a  limited  place  is  given  to  deduction  in 
the  old  sense.  The  old  school  started  with  general  proposi- 
tions, called  in  logic  premises.  The  new  school  believes  that 
it  is  an  essential  part  of  political  economy  to  gather  those 
premises  from  which  conclusions  are  drawn. 

It  may  be  said,  then,  that  modern  political  economy  uses 
these  methods  :  deduction,  induction,  observation  and  de- 
scription, statistics.  Deduction  and  induction  have  already 
been  discussed,  and  examples  will  be  afforded  by  the  sub- 
sequent chapters  in  this  book.  Deduction  is  and  should  be 
used,  and  especially  for  certain  classes  of  phenomena  where 
other  methods  fail.  International  trade  may  be  cited  as  an 
example.  It  is  difficult  to  separate  and  interpret  the  facts. 
England  has  prospered,  let  us  admit,  under  free  trade.  Was 
free  trade  the  cause?  Certainly  other  forces  have  been  at 
work  tending  to  make  England  a  wealthy  country.  France 
has  prospered  under  protection,  and  so  has  our  own  country. 
Was  protection  the  cause?  How  difficult  to  answer  !  We 
seek  aid  from  known  general  principles. 

Insufficiency  of  the  Deductive  Method. — At  the 
same  time  we  must  recognize  that  deduction  is  in  a  sense  a 
dangerous  method.  Granted  premises,  conclusions  will 
follow,  and  there  is  a  likelihood  that  men  will  choose  prem- 
ises even  unconsciously  which  will  lead  to  the  conclusions 
desired  by  them.  The  factory  legislation  of  England,  de- 
signed to  protect  the  laboring  population  of  that  country, 
serves  as  an  illustration.  It  might  have  all  been  reasoned 
out  deductively.  Little  children,  almost  infants,  were  em- 
ployed for  long,  weary  hours  in  factories  and  in  mines  under- 
ground, and  physicians  asserted  that  the  rising  generation 
was  being  ruined  physically  and  morally.  Now  how  did  this 
happen  ?  It  has  already  been  explained.  A  few  employers 
led,  and  force  of  competition  compelled  others  to  follow  them 


ECONOMIC  METHODS.  121 

in  their  bad  practices.  We  know  enough  about  human  nature 
to  convince  us  that  it  is  a  hopeless  task  to  inspire  all  members 
of  an  industrial  class  with  lofty  motives  and  firm  purposes, 
and  that  consequently  the  moral  plane  of  competition  must 
be  raised  by  the  strong  arm  of  the  law.  Yet  the  so-called 
inductive  process,  which  in  this  case  means  experimentation 
and  observation,  was  the  method  which  taught  economic 
truth.  As  a  matter  of  fact,  reforms  were  carried  through  by 
an  appeal  to  ethical  sentiment.  As  stated,  this  entire  scheme 
of  reform  can  now  be  reasoned  out  deductively,  but  at  the 
time  deductive  economists  almost  unanimously  opposed  it, 
talking  all  sorts  of  nonsense  about  the  ruin  of  England's  in- 

o  o 

dustrks  from  foreign  competition  if  child  labor  were  abol- 
ished and  hours  of  labor  reduced,  and  claiming  that  the 
entire  profits  of  capital  came  in  the  last  halt-hour  of  toil,  etc., 
etc.  Observation  has  convinced  economists  that  English  fac- 
tory legislation  was  a  good  thing,  and  that  it  has  established 
the  industrial  supremacy  of  England  on  a  firmer  basis  than 
ever. 

So  many  premises  are  possible,  and  so  many  combinations 
of  premises,  that  deduction  is  apt  to  mislead.  When  used, 
conclusions  should  always  be  carefully  tested  by  actual  ex- 
perience, and  we  must  be  ready  not  merely  to  test  conclusions 
but  to  draw  conclusions  from  facts  even  in  cases  suitable  for 
deduction,  because  human  passion  has  such  play  in  deductive 
processes.  Deduction  could  not  convince  the  hard  hearts  of 
English  Gradgrinds  that  factory  legislation  was  a  good  thing, 
but  facts  as  hard  as  their  hard  hearts  were  arguments  which 
they  knew  not  how  to  resist. 

Observation  and  description  have  a  large  place  in  political 
economy.  Logical  processes  have  too  exclusively  dominated 
a  great  deal  of  political  economy.  More  plain,  simple  de- 
scription is  needed.  Labor  organizations,  co-operation,  and 
profit-sharing  experiments,  the  workings  of  systems  of  taxa- 
tion, are  to  be  observed  and  described.  Institutions  and 
customs  are  to  be  observed  and  described  ;  also  the  effects 
of  desires  on  production.  Nothing  is  so  little  cultivated  in 


122  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

general  as  the  liabit  of  observation  of  economic  and,  in  gen- 
eral, social  phenomena.  Text-books,  written  by  those  whose 
little  learning  was  a  dangerous  thing,  have  aroused  prejudices 
and  have  provided  men  with  a  set  of  shibboleths,  terms  and 
phrases,  by  which  they  decide  all  practical  problems  of  states- 
manship in  an  offhand  way,  much  more  easily  than  by  patient 
inquiry.  Words  have  been  taken  for  knowledge,  and  prog- 
ress has  been  obstructed.  If  readers  of  this  book  will  keep 
their  eyes  open,  their  minds  and  hearts  open  for  new  truth, 
and  consecrate  themselves  to  truth,  they  will  advance  rapidly 
in  economic  knowledge.  A  brief  outline  or  sketch  of  a 
science  does  positive  harm  when  it  leaves  readers  with  the 
impression  that  they  are  well-informed.  The  aim  of  this 
book  is  not  to  leave  readers  with  a  satisfied  feeling,  but  to 
awaken  curiosity  and  to  stimulate  them  to  further  study;  in 
particular  to  arouse  in  them  habits  of  careful  and  accurate 
observation  of  the  economic  life  of  all  classes  of  men,  hours 
of  labor,  wages  paid,  housing  of  the  laboring  class  and  other 
classes,  various  taxes  paid  in  one's  own  town,  the  relation  of 
local  taxes  to  State  taxes,  the  methods  of  granting  franchises 
to  corporations  for  the  use  of  the  streets,  comparsions  be- 
tween the  cost  of  electric  light  when  the  electric  lighting 
plant  is  owned  by  the  city  and  when  it  is  owned  by  private 
corporations,  etc.,  etc. 

Analysis. — The  statistical  method  has  been  described, 
and  it  remains  to  say  a  word  about  analysis.  Analysis  would 
seem  to  be  an  aid  to  other  methods  rather  than  an  independ- 
ent method.  It  consists  in  separation  of  complex  phenomena 
into  parts  so  that  they  can  be  better  understood.  Economic 
knowledge  is  impossible  without  careful  analysis.  One  of 
the  most  frequent  causes  of  error  is  a  lack  of  analysis,  or,  as 
is  more  commonly  said,  a  failure  to  discriminate.  Monopolies 
serve  as  an  illustration.  Some  are  good,  others  bad  ;  some 
are  good  under  certain  conditions  and  bad  under  others  ; 
some  are  brought  about  of  necessity  by  the  inherent  prop- 
erties of  certain  kinds  of  businesses  ;  others  are  artificial 
products  which  can  be  abolished.  Nevertheless,  monopolies 


ECONOMIC  METHODS.  123 

are  usually  judged  "  in  a  lump."  They  are  praised  or  blamed 
indiscriminately,  and  legislators  too  often  desire  to  treat 
them  all  alike.  Analysis  enables  us  to  separate  monopolies 
and  arrange  them  in  groups  so  that  each  may  be  discussed 
and  treated  in  an  appropriate  manner. 


Read  Statistics  and  Economics,  by  Professor  Richmond 
M.  Smith.  The  monograph  on  "  Statistik "  which  Chan- 
cellor von  Riimelin  contributed  to  Schonberg's  Handbach 
der  Politischen  Oekonomie  should  also  be  consulted  by  those 
who  read  German.  Morselli's  work  on  Suicide,  in  the  In- 
ternational Scientific  Series,  gives  illustration  of  statistical 
method  in  that  subject. 


CHAPTER    XIV. 

ECONOMIC    LAWS. 

"  Natural  Laws." — Laws  in  the  economic  world  have 
been  much  discussed,  and  there  has  been  a  parade  of  "  nat- 
ural laws  "  which  we  have  been  called  upon  to  admire  and 
to  obey.  Xow  the  word  natural  may  be  used  in  two  senses. 
If  nature  includes  man  and  everything  in  the  universe,  it  is 
mere  tautology  to  say  that  every  thing  which  happens  is 
natural.  But  nature  is  generally  conceived  as  including 
every  thing  except  man's  mind  and  its  voluntary  activity 
as  manifested  in  his  acts.  By  natural  laws  are  meant  laws 
precisely  like  those  of  the  external  physical  universe.  If 
this  sense  of  the  term  be  employed,  it  may  be  said  that  there 
are  no  natural  laws  in  political  economy.  Why  should  there 
be?  Political  economy  deals  with  a  different  order  of  facts 
from  the  natural  sciences,  and  its  laws  are  of  a  different 
kind.  The  marvelous  progress  of  the  natural  sciences,  com- 
bined with  what  may  be  called  a  wave  of  materialism  which 
in  recent  years  has  passed  over  us,  has  led  to  an  undue  ex- 
altation of  natural  laws,  and  people  come  forward  triumph- 
antly with  the  claim  that  they  can  demonstrate  the  existence 
cif  natural  Inws  in  the  business  world  or  even  in  the  spiritual 
world.  All  that  they  appear  to  accomplish,  however,  is  to 
show  analogies  between  certain  orders  of  facts.  It  is  no 
disparagement  either  to  the  social  organism  or  to  the  re- 
ligious life  to  admit  frankly  that  they  are  not  governed 
by  natural  laws,  that  is,  the  laws  of  the  external  physical 
world. 

"  Laissez-Faire/' — What  are  these  natural  laws  of  the 
socio-economic  organism  ?  Let  some  one  enumerate  them. 
When  this  has  been  attempted  no  progress  has  been  made 


ECONOMIC  LA  WS.  125 

beyond  a  few  truisms  and  self-evident  propositions  which 
political  economy  never  established.  One  writer  speaks  of 
the  maxim  laissez-faire,  the  theory  of  non-interference  and 
passivity  of  government,  as  natural  law.  "  It  carries  with 
it,"  says  this  writer,  '•'  the  revelation  of  our  science,  and  an- 
nounces the  presence  of  those  natural  laws  which  it  is  the 
mission  of  the  science  to  study.  At  the  same  time  this 
maxim  is  the  first- fruit  of  this  revelation."  Unfortunately 
for  the  theory  of  natural  laws,  this  maxim,  laissez-faire) 
has  generally  been  abolished  both  by  science  and  practice  in 
all  civilized  lands.  It  is  thought  that  it  performed  good 
service  at  the  time  it  became  powerful,  but  that  it  is  no 
longer  suited  to  the  needs  of  the  modern  world.  Imagine 
physicists  as  renouncing  the  law  of  the  attraction  of  gravita- 
tion as  no  longer  adapted  to  our  world! 

Self-interest. — But  have  not  men  always  been  actuated 
by  self-interest  ?  Were  not  the  Modes  and  Persians  thou- 
sands of  years  ago,  like  the  Americans  of  to-day,  moved  by  a 
desire  to  advance  their  own  interests  ?  Is  not  here  a  natural 
law?  at  any  rate — nnd  this  is  usually  meant — a  law  which 
acts  with  the  regularity  and  certainty  of  the  physical  uni- 
verse ?  By  no  means.  Self- interest  is  not  a  constant  force 
which  can  be  accurately  measured.  It  leads  one  man  to 
cheat,  another  to  steal,  it  leads  a  third  to  underhand  busi- 
ness practices  which  just  keep  within  (he  law.  It  prompts  a 
fourth  to  deal  honestly,  to  describe  his  wares  as  they  are, 
and  to  sell  them  at  a  "  fair  price,"  and  at  the  same  price  to 
all.  Self-interest  induces  some  men  to  smuggle,  but  induces 
others  not  to  smuggle.  We  observe  the  proportion  between 
smugglers  and  non-smugglers.  Now  let  us  change  the  laws, 
reducing  or  raising  taxes  on  imported  commodities.  Lo ! 
the  proportion  between  smugglers  and  non-smugglers  has 
changed.  Some  adulterate  their  goods;  others  do  not;  some 
manufacturers  do  all  they  can  to  secure  the  passage  of  laws 
regulating  and  restricting  child-labor  ;  other  manufacturers 
oppose  the  passage  of  these  laws  and  break  them  alter  they 
have  come  into  force.  Thou  we  hear  about  real  self-interest 


126  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

and  apparent  self-interest.  Doubtless  there  is  such  a,  dif- 
ference, but  must  not  a  man  be  moved  by  different  mo- 
tives than  self-interest  to  perceive  his  real  self-interest? 
Some  claim  that  self-interest  may  be  compared  to  the  attrac- 
tion of  gravitation.  They  say  that  other  forces  act  counter 
to  the  attraction  of  gravitation,  as  the  friction  of  the  air  or 
the  force  of  the  wind.  Yet  all  these  forces  do  net,  and  the 
motion  which  takes  place  is  a  result  of  their  combined  action — 
a  resultant.  This  is  not  the  case  with  human  motives.  We 
choose,  and  one  motive  displaces  another.  Again,  back  of 
motives  there  are  laws  and  institutions  on  which  motives 
act.  How  will  self-interest  act  when  custom  fixes  prices  ? 
how  when  competition  fixes  prices? 

Social  Laws. — It  must  be  apparent  that  we  have  to  do 
with  laws  different  from  those  which  govern  the  physical 
universe.  Our  laws  may  be  called  relative  laws,  or  histor- 
ical laws,  or,  if  one  pleases,  social  laws.  They  are  the  result 
of  the  peculiar  constitution  of  our  politico-economic  life, 
which  is  made  what  it  is  by  the  action  of  human  desires 
and  passions  and  efforts  upon  the  physical  universe  governed 
by  its  own  laws.  The  will  of  man  is  a  main  factor  in  all 
politico-economic  phenomena,  and  this  will  must  be  regarded 
by  students  of  society  as  itself  a  creative  energy,  introducing 
new  forces.  We  can  observe  certain  regularities  and  ten- 
dencies in  all  social  phenomena,  and  when  statistics  began 
to  make  rapid  strides  these  regularities  and  tendencies  were 
called  la\vs.  When  it  was  observed  that  out  of  ten  thousand 
people  a  certain  definite  number  every  year  got  married,  an- 
other definite  number  procured  divorces,  still  a  different  but 
definite  number  committed  crimes,  a  precise  number  which 
could  be  told  in  advance  took  their  lives — when,  in  short, 
all  social  phenomena  appeared  to  recur  regularly  year  after 
year — a  feeling  akin  to  fatalism  arose,  and  some  statisticians 
were  inclined  to  look  upon  these  regularities  as  laws  of  the 
external  world  beyond  the  control  of  m;in.  Further  in- 
quiry revealed  differences  in  these,  proportions  between  dif- 
ferent lands,  and  showed  further  that  differences  could  be 


ECOXO.MIC  LA  \YS.  127 

brought  about  by  the  action  of  man.  The  phenomena  of 
intemperance  have  in  parts  of  England  and  other  countries 
been  definitely  altered  by  agitation  of  various  kinds  for 
reform.  We  have  at  times  to  do  with  powerful  tendencies 
in  economic  lite,  and  these  for  a  period  appear  to  resemble 
laws  of  the  physical  universe.  The  tendency  of  certain 
pursuits,  like  gas  service,  street-car  service,  telephone  service 
and  the  like,  to  become  monopolies  acts  with  a  power  like 
that  of  a  mighty  river,  and  we  can  with  safety  predict  that 
apparent  competition  in  the  field  of  natural  monopoly  will 
prove  both  illusory  and  temporary.  Most  instructive  is  the 
observation  of  great  currents  in  our  economic  life  and  the 
study  of  the  forces  back  of  them. 


Read  the  author's  monograph,  The  Past  and  Present  of 
Political  Economy,  published  by  the  Johns  Hopkins  Univer- 
sity in  its  Studies  in  History  and  Political  Science. 
0* 


CHAPTER  XV. 

A  FEW  R  KM  ARKS  ON  THE  UTILITY  OF  POLITICAL  ECONOMY, 
WITH  SOME  GENERAL  CONSIDERATIONS  ON  THE  RELATION 
OF  POLITICAL  ECONOMY  TO  OTHER  SCIENCES. 

1.  Political  Economy  a  Useful  Science. — The  pre- 
ceding pages  have,  it  is  hoped,  convinced  the  reader  that 
political  economy  is  a  useful  study,  and  one  worthy  of  the 
greatest  minds.  It  affords  room  for  the  speculative  intellect, 
and  yet  speculations  can  be  tested  by  the  experiences  of 
actual  life.  Fancy  and  imagination,  so  necessary  to  all  sci- 
ences, have  here  ample  scope  for  their  exercise  in  attempts 
to  construct  hypotheses  to  explain  social  phenomena.  The 
best  powers  of  observation  find  opportunities  for  service, 
and  experience  will  further  sharpen  them.  The  keenest 
analytical  intellect  will  never  be  at  a  loss  for  material  on 
which  to  bring  all  its  acumen  to  bear.  Philosophical  in- 
stinct, which  seeks  insight  into  the  innermost  nature  of 
things,  is  most  welcome  in  political  economy.  Philanthropic 
sentiment  i><  gratified  by  the  discovery  of  ways  to  benefit 
the  human  race. 

It  is,  however,  frequently  asserted  that  political  economy 
is  not  practical,  that  it  is  in  fact  "  a  mere  theory,"  and  as 
such  its  claims  are  often  rejected  by  business  men.  This 
is  short-sighted.  Political  economy  has  to  do  with  the 
socio-economic  organism,  and  knowledge  can  be  acquired 
about  this  by  systematic  study  in  the  manner  described,  and 
this  knowledge  can  be  transmitted  and  increased  by  accumu- 
lation from  generation  to  generation.  The  actual  experience  of 
the  so-called  practical  man  does  not  take  the  place  of  economic 
knowledge.  1  lis  experience  is  too  narrow  and  limited.  If  1  e  is 
a  man  of  small  nature  he  is  very  positive  of  his  own  infallibil- 
ity, and  looks  upon  the  claim  of  the  economist  that  he  can 


THE  UTILITY  OF  POLITICAL  ECOXOXY.  129 

tell  him  something  about  the  business  world  as  unwarrantable 
presumption.  Yet  his  conclusions  are  diametrically  opposed 
to  those  of  a  practical  man  in  another  line  of  business  on  the 
opposite  side  of  the  street,  and  both  of  them  differ  in  views 
from  the  opinions  of  practical  men  in  a  neighboring  city. 
It  is  because  the  range  of  facts  of  each  is  exceedingly  narrow 
and  each  has  been  entirely  absorbed  in  his  own  affairs.  It  is 
on  this  account  that  the  attempt  to  improve  politics  by  put- 
ting practical  business  men  in  office  has  so  often  proved  dis- 
astrous, and  men  have  been  again  and  again  obliged  to  go 
back  to  the  so-called  professional  politician.  Business  facts 
are  not  all  those  needed  in  government.  Finances  of  govern- 
ment, for  example,  ought  in  some  respects  to  l>e  conducted 
on  principles  exactly  opposite  to  those  which  obtain  in  private 
financiering.  Political  economy  is  a  young  science — as  a  sepa- 
rate science  scarcely  over  a  hundred  years  old — and  it  behooves 
political  economists,  though  conscious  of  their  own  value,  to  be 
modest  in  their  claims  and  to  remember  that  much  is  yet  to  be 
learned  by  the  wisest  of  them.  Nevertheless,  how  diverse  are 
the  elements  which  have  contributed  to  this  body  of  knowl- 
edge! In  the  historical  sketch  it  will  be  seen  that  philosophers 
have  helped  to  build  it  up,  that  distinguished  and  remarkably 
successful  business  men  have  contributed  their  best  thoughts 
to  advance  its  growth,  that  statesmen  of  the  leading  civilized 
nations  have  participated  in  its  development,  as  well  as  those 
who  have  been  primarily  political  economists,  while  great 
philanthropists  have  helped  to  give  it  shape.  For  a  century, 
then,  business,  philosophy,  jurisprudence,  and  practical  poli- 
tics and  philanthropy  have  helped  to  make  political  econ- 
omy what  it  has  become,  and  the  fruit  of  so  much  intel- 
lectual effort  and  such  extended  experience  is  not  to  l>e 
regarded  lightly,  even  while  it  is  recognized  that  on  account 
of  the  complexity  of  the  subject-matter  political  economy  is 
yet  in  an  imperfect  condition.  Kven  where  it  cannot  speak 
authoritatively  it  is  always  entitled  to  a  respectful  hearing. 
The  truth  is,  every  body  who  is  not  a  fool  must  act  accord- 
ing to  some  theory,  but  the  ordinary  man  is  often  guided  ;n 


133  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

economic  utterances  by  antiquated  theory  which  has  gradu- 
ally percolated  down  through  several  social  strata  until  it  has 
reached  him. 

A  practical  man  might  as  well  try  to  get  along  without  a 
lawyer  as  a  modern  nation  without  political  economists.  The 
political  economist  is  in  fact  to  the  people  as  a  whole  what 
the  lawyer  is  to  the  private  man.  It  is  the  business  of  the 
political  economist  to  guard  the  interests  of  the  masses,  and 
to  suggest  measures  to  promote  their  welfare.  The  political 
economist  may  in  some  respects  be  compared  to  a  physician, 
only  that  he  deals  with  the  body  politic.  We  can  imagine 
a  man  saying,  "  I  know  more  about  my  own  body  than  a 
mere  theorist  who  has  been  studying  under  college  professors 
and  working  in  laboratories  and  has  never  had  any  practical 
experience  witli  my  body."  Yet  we  know  that  such  talk  is 
nonsense.  It  is  because  the  practical  business  man  has  so 
often  failed  to  recognize  this  and  to  remedy  his  own  short- 
comings, and  has  advanced  his  crude  and  antiquated  ideas  as 
practical  guides,  that  one  of  our  deepest  thinkers  in  political 
science  has  spoken  of  the  "  practical  man  as  the  bane  of  our 
political  life."  Certain  it  is  that  our  government  will  con- 
tinue to  be  almost  exclusively  a  government  of  lawyers  until 
people  more  generally  take  pains  to  instruct  themselves  in 
the  various  branches  of  political  and  social  science.  Gov- 
ernment can  never  be  conducted  like  a  manufactory  or  a 
mercantile  establishment,  and  every  proposal  so  to  conduct 
it  reveals  ignorance  of  first  principles. 

2.  Political  Economy  and  Other  Sciences. — Every 
science  contributes  directly  or  indirectly  to  every  other.  All 
knowledge  is  one.  But  we  are  now  concerned  chiefly  with 
that  group  of  sciences  which  has  to  do  especially  with  human 
society.  Before  we  pass  on  to  remarks  about  social  sciences 
a  word  must  be  said  about  philosophy,  physiology,  and  hy- 
giene. 

Philosophy  and  Political  Economy. —  Philosophy  is 
useful  perhaps  especially  as  a  mental  training.  Philosophy 
seeks  to  look  into  the  fundamental  principles  of  all  knowl- 


THE  UTILITY  OF  POLITICAL  ECONOMY.  131 

edge  and  inquires  then  into  the  nature  of  the  State  and  of 
society  and  the  aim  of  life.  It  seeks  a  final  reason  for  things. 
It  gives  broad  and  generous  views,  and  lifts  up  the  mind  in 
the  contemplation  of  immense  themes.  Philosophy  helped 
to  give  birth  to  political  economy,  and  when  in  England  it 
seemed  on  the  point  of  collapse  philosophy  gave  it  new  life. 
Philosophy  has  again  and  again  been  a  source  of  inspiration 
to  German  economists,  and  perhaps  the  lack  of  philosophy 
explains  the  sad  deadness  of  political  economy  in  France, 
where  for  a  hundred  years  almost  nothing  has  been  done 
to  advance  the  science.  Philosophers  like  Fichte,  Hermann 
Lotze,  must  to-day  assist  economists  who  are  competent  to 
understand  them.  Logic,  regarded  as  a  branch  of  knowl- 
edge, is  especially  useful  on  account  of  the  discipline  it  gives 
in  careful  reasoning,  particularly  in  analysis,  discrimination, 
and  detection  of  fallacies. 

Physiology  and  Hygiene  and  Political  Economy. 
— Physiology  and  hygiene  are  helpful  in  the  discussion  of 
social  questions,  and  too  little  has  been  made  of  them  hith- 
erto. Physiology,  for  example,  ought  to  be  consulted  in 
questions  like  child  labor,  labor  of  women,  especially  married 
women,  the  length  of  the  working-day  in  factories  and  in 
open  fields,  etc.  Hygiene  furnishes  rules  for  sound  physical 
life.  M.  cle  Laveleye  even  says  that  the  science  of  health 
ought  to  determine  the  normal  rate  of  wages.  The  human 
body  is  the  chief  source  of  wealth,  and  physiology  and 
hygiene  must  teach  us  how  to  conserve  and  increase  our 
bo<lily  powers. 

History  and  Political  Economy.  —  History  reveals 
to  us  the  economic  life  of  the  past  with  its  instruction  and 
lessons.  History  clearly  presents  many  of  our  problems,  a<, 
for  example,  the  downfall  of  States.  How  can  we  guard 
against  the  evil  unless  we  truly  know  its  nature  ?  It  seems 
clear  that  economic  forces  are  prominent  in  the  decay  of 
civilization.  Hut  we  have  not  yet  a  sufficiently  accurate  and 
detailed  knowledge  of  them.  A  profounder  study  of  eco- 
nomic history  must  precede  a  satisfactory  political  economy. 


132  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

At  the  same  time  history  cannot  be  understood  without  a 
knowledge  of  economic  forces  which  give  it  shape.  This  is 
clearly  seen,  and  as  the  writer's  colleague,  Professor  H.  B. 
Adams,  well  says,  political  economy  is  becoming  historical, 
and  history  is  becoming  economic. 

Ethics  and  Political  Economy. — The  relation  of  po- 
litical economy  to  ethics  has  already  been  sufficiently  indi- 
cated. Ethics  is  connected  with  what  ought  to  be  both  for 
individuals  and  for  society,  and  if  ethics  has  heretofore  consid- 
ered man  too  exclusively  as  an  isolated  individual,  its  prog- 
ress for  the  future  evidently  lies  in  the  examination  of  social 
relations.  It  may  be  doubted  whether  ethics,  except  as  a 
social  science,  can  have  any  real  existence.  Political  econ- 
omy takes  what  ethics  has  to  offer  as  a  guide  for  the  devel- 
opment of  economic  life.  Ethical  conceptions  have  always 
governed  all  social  life  more  or  less  perfectly.  The  economic 
life  of  ancient  Oriental  nations  was  more  under  the  dominion 
of  ethical  principles  than  has  been  that  of  modern  Occidental 
nations.  The  ethical  principles  of  the  East  were  not  of  so  ex- 
alted a  nature  as  ours,  but  such  as  they  were  they  permeated 
their  life  as  ours  do  not.  The  national  economy  of  the 
Jews  illustrates  this  excellently.  During  the  Middle  Ages 
the  Church  attempted,  and  for  a  time  with  some  success,  to 
subordinate  all  social  life-spheres  to  the  demands  of  ethics. 
Personal  service,  returns  for  loans,  and  prices  were  regulated. 
The  conception  "fair  price"  (justum  pretium)  was  formu- 
lated, and  exerted  a  powerful  influence.  It  seems  clear  to 
the  writer  that  industrial  peace  can  never  be  secured  until 
the  supremacy  of  ethics  is  recognized  by  public  opinion,  and 
is  made  effective  by  laws  and  constitutions.  It  is  on  this 
account  that  the  institution  of  "fair  rents"  in  Ireland  is  to 
be  welcomed.  It  may  or  may  not  work  well  in  this  particu- 
lar instance  ;  that  is,  the  proper  method  for  giving  effect  to 
ethical  principles  may  not  have  been  adopted,  or  it  may 
have  been  ;  but  the  supremacy  of  ethical  considerations  in 
either  case  is  recognized  and  the  freedom  of  contract  dis- 
tinctly subordinated,  as  in  American  usury  laws.  Courts  fix 


THE  UTILITY  OF  POLITICAL  ECONOMY.  133 

rents  which  are  regarded  as  "fair"  in  Ireland  irrespective 
of  all  agreements.  It  may  be  difficult  to  tell  in  general 
what  is  fair,  but  not  so  hard  in  a  concrete  instance.  At  any 
rate  it  is  actually  done.  "•  Live  and  let  live  "  is  our  homely 
adage  which  expresses  a  popular  idea  of  fairness,  and  this 
seems  in  a  rough  kind  of  way  to  give  the  Irish  land  courts 
a  guiding  principle  in  determining  fairness.  Ethics  should 
investigate  more  carefully  than  it  has  done  the  nature  of 
mutual  rights  and  duties. 

Political  Economy  and  Religion. — We  may  prop- 
erly enough  speak  of  a  knowledge  of  religions  as  a  science, 
or  even  of  u  knowledge  of  one  religion.  Theology  is  a  sys- 
tematic treatment  of  a  certain  order  of  related  facts.  But 
here  we  are  concerned  with  religion  not  so  much  as  a  science 
as  an  inspiration,  as  a  power  to  direct  life,  and  thus  as  inti- 
mately connected  with  ethics.  Religion,  like  ethics,  supplies 
norms  for  conduct,  but  it  does  more.  It  supplies  a  moral 
force  to  induce  men  to  acknowledge  the  truth,  and  to  do  what 
they  know  to  be  right. 

Every  system  of  religion  must  affect  the  general  charac- 
ter of  the  nation  under  its  influence.  The  fatalism  of  the 
Turks  leads  naturally  to  indolence,  while  the  old  Jewish 
religion  with  its  high  estimate  of  the  good  things  of  tliis 
world  tends  to  stimulate  its  followers  to  activity  and  to 
accumulation.  Christianity  moderates  desires,  sets  a  higher 
aim  than  wealth  before  people,  but  dignifies  the  man  who 
gains  his  bread  by  honest  toil,  and  enjoins  diligence  and  an 
improvement  of  all  talents  committed  to  us.  It  teaches  us 
to  love  our  fellows,  and  this  has  encouraged  enlightenment 
of  the  masses,  and  enlightenment  increases  prosperity.  Love 
for  our  fellows  prompts  us  to  promote  their  physical  welfare 
in  every  respect,  and  this  tends  to  conserve  and  increase  their 
strength. 

It  is  not  practicable  at  present  to  take  up  every  one 
of  the  constant! v  increasing  number  of  branches  of  social 
science  and  to  trace  the  relations  between  it  and  political 
economy.  These  relations  must  often  be  quite  obvious.  The 


134  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

treatment  of  the  dependent  and  criminal  classes  brings  us  in 
relation  to  a  multitude  of  economic  phenomena.  These 
classes  impair  the  productive  power  of  the  community,  and 
the  number  of  persons  belonging  to  them  is  largely,  though 
not  wholly,  determined  by  industrial  conditions.  If  the 
laboring  population  is  housed  in  crowded  tenements  in  the 
slums  of  cities,  it  will  help  to  swell  the  ranks  of  vice  and 
pauperism.  If  child  labor  is  general,  a  generation  weak  in 
body  and  will-power,  with  depraved  habits  early  acquired, 
may  be  expected.  Many  such  reflections  will  occur  to  the 
reader,  and  observation  of  the  life  which  surrounds  him 
will  every  day  confirm  what  is  said.  Prison  labor  is  one 
topic  showing  the  connection,  though  only  a  small  part  of 
the  connection,  between  penology  and  economics.  Contract 
labor  has  injured  the  working-men  and  their  employers.  It 
has  in  Baltimore  destroyed  for  free  labor  an  important  branch 
of  a  large  industry — namely,  the  manufacture  of  marble  slabs 
for  wash-stands,  Pullman  sleepers,  bureaus,  and  the  like. 
But  if  the  labor  of  prisoners  is  not  to  be  hired  to  contractors, 
to  the  injury  of  the  upright,  how  shall  it  be  organized  ?  for 
idleness  is  barbarous  inhumanity  not  to  be  tolerated.  Here 
we  come  to  economic  questions.  Poor  relief,  public  and  pri- 
vate, is  as  intimately  connected  with  economics,  and  it  has  been 
discussed,  perhaps,  chiefly  by  economists.  It  was  an  English 
economist,  Malthus,  who,  on  economic  principles,  helped  to 
introduce  a  reformation  of  the  poor  laws  of  England  in 
1804. 

Anthropology  may  be  mentioned  under  this  general 
head.  It  is  sometimes  conceived  of  in  a  large  sense  as  the 
science  of  man.  It  would  then  include  sociology  and  every 
thing  else  about  man  which  could  not  be  brought  under  the 
general  designation  social  relations.  Very  often,  however,  it 
means  prehistoric  and  early  man,  man  in  the  lowest  stages  of 
his  development,  and  discusses  the  dawn  of  civilization.  It 
includes  the  economic  life  of  prehistoric  and  early  man  as 
one  part  of  its  field. 

Law  and  Political  Sciences. — The  relation  of  political 


THE  UTILITY  OF  POLITICAL  ECONOMY.  135 

economy  to  law  is  a  close  one,  especially  in  our  day,  for  polit- 
ical economy  explains  the  reasons  for  a  great  part  of  the 
law?,  their  nature  and  the  principles  which  should  control 
their  development.  Many  of  the  subjects  which  belong  to 
political  economy  belong  also  to  law.  Both  treat  of  posses- 
sion, property,  inheritance,  sale  and  purchase,  loans,  gifts, 
wages,  rent,  taxation,  combinations  of  labor  and  capital,  and 
like  topics.  Political  economy  touches  the  innermost  nature 
of  law  questions.  It  might  not  be  altogether  inappropriate 
to  call  political  economy  "the  spirit  of  the  laws,"  taking  the 
name  from  Montesquieu's  book  which  bears  that  title. 

As  we  have  seen,  political  economy  has  by  one  writer  been 
defined  in  such  a  manner  as  to  convey  the  impression  that  it 
has  to  do  exclusively  with  legislation.  This  was  rejected  as 
too  narrow  a  conception.  Yet  if  we  think  of  live  economic 
questions  we  shall  find  that  they  are,  very  generally  at 
least,  in  part  legislative  questions.  Topics  such  as  these 
occur  to  one  :  the  tariff,  local  taxation,  the  silver  question, 
bimetallism,  railways,  child  labor,  industrial  training. 

When  we  open  a  law  book  on  real  estate,  what  is  found  ? 
If  it  is  an  American  or  English  book,  probably  very  little 
save  present  legal  facts.  The  law  is  thus  and  so,  says  your 
legal  authority  ;  nothing  more.  Political  economy  tells  us 
how  private  property  in  land  came  to  exist,  why  it  exists, 
and  explains  the  reason  why  some  changes  in  land  laws 
should  be  made,  and  why  some  people  think  they  should  be 
radically  altered  and  private  property  in  land,  as  at  present 
understood,  abolished,  and  why  others  reject  this  view. 

What  has  been  said  about  real  estate  holds  equally  with  ref- 
erence to  laws  of  bequest  and  inheritance.  No  man  is  fit  to 
legislate  on  these  subjects  who  knows  nothing  about  political 
economy.  Commercial  laws  and  the  laws  pertaining  to  cor- 
porations can  likewise  never  be  properly  handled  without  the 
aid  of  our  science. 

Political  economy  is  needed  as  a  corrective  of  certain 
tendencies  in  the  law.  Private  law  has  to  do  with  indi- 
vidual rights,  and  lawyers  acquire  a  habit  of  looking  at 


755  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

all  questions  from  an  individual  stand-point.  This  be- 
comes painfully  apparent  in  reading  English  and  Ameri- 
can judicial  decisions.  The  rights  of  the  people  as  a 
whole,  that  is,  of  the  many,  are  overlooked  too  often  for 
the  sake  of  a  few  interested  parties.  It  is  not  meapt  to 
attack  the  integrity  of  American  and  English  judges,  because 
with  comparatively  few  exceptions  they  have  been  men  of 
blameless  character.  The  trouble  lies  with  the  point  of  view 
which  naturally  arises  from  an  exclusive  consideration  of 
private  law.  Every  judge  is  familiar  with  the  bearing  of 
legal  questions  on  the  private  interest  of  individuals,  but  too 
often  loses  sight  of  the  millions  not  present  before  him.  If 
we  go  back  to  olden  times  or  foreign  countries,  about  which 
our  judgment  is  fairer,  we  can  all  see  this  tendency  of  law- 
yers as  a  class,  both  in  legislatures  and  on  the  bench,  to  sacri- 
fice the  many  to  the  few.  The  common  lands  of  India  serve 
as  an  illustration.  English  lawyers  could  not  grasp  the  fact 
of  common  property  of  a  village  in  land,  and  so  looked  about 
for  a  private  owner,  and  mistaking  a  tax  collector  for  pro- 
prietor they  made  him  a  real  proprietor.  Thus  were  the 
villages  robbed  by  legal  incapacity  to  grasp  the  economic 
situation.  The  same  thing  happened  in  England,  as  Sir 
Henry  Maine,  John  Stuart  Mill,  and  others  have  shown. 
The  common  land  belonging  to  English  villages  was  allowed 
to  be  inclosed  by  lords  of  manors,  and  thus  the  property 
rights  of  the  forgotten  millions  were  again  sacrificed. 

Private  law  is  concerned  with  petty  details,  and  attaching 
undue  importance  to  them  is  apt  to  exaggerate  the  importance 
of  mere  legality,  the  letter  and  machinery  of  the  law.  Politi- 
cal economy  gives  large  views  and  general  principles. 

Voltaire  called  lawyers  conservators  of  ancient  abuses,  and 
Professor  Bluntschli  speaks  of  law  in  itself  without  any  cor- 
rective influence  as  "tending  to  the  numbness  of  death," 
failing  "to  keep  step  with  the  development  of  life."  Rule 
by  judges  tends  to  petrifaction,  and  is  conservatism  of  a  rev- 
olutionary because  obstructive  type.  Lawyers  have  doubt- 
less caused  by  obstruction  many  revolutions,  and  they  can 


THE  UTILITY  OF  POLITICAL  ECONOMY.  137 

rarely  reconcile  themselves  to  great  progressive  changes  like 
the  independence  of  the  American  colonies  or  the  unity  of 
Germany  or  of  Italy  until  after  these  things  have  taken 
place.  The  reason  is  that  lawyers  are  always  looking  back 
to  the  past  for  legal  precedent,  never  ahead,  and  this  begets 
a  dangerous  habit  unless  other  tendencies  are  at  work  to 
correct,  or  perhaps,  more  properly,  modify  the  force  of  this 
conservatism.  Political  economy  is  progressive,  and  helps  to 
counterbalance  a  dangerous  tendency  toward  revolutionary 
conservatism. 

Law  is  concerned  with  modern  industrial  life.  To  an  increas- 
ing extent  are  legal  questions  becoming  almost  purely  eco- 
nomic, as  seen  in  boycott,  black-listing,  conspiracy,  and  combi- 
nation cases.  Legislators  make  laws  to  apply  to  these  cases, 
and  judges,  in  their  decisions,  do  not  merely  find  the  law;  they 
make  it.  Recently  in  such  cases  American  judges  have  been 
more  active  in  legislation  than  legislators  themselves.  Yet  leg- 
islators, and  particularly  judges,  are  unfit  to  make  decisions, 
and  cannot  make  decisions  which  will  stand  the  test  of  time 
without  a  profound  knowledge  of  political  economy.  It  is 
thus  with  propriety  that  France  and  Prussia  require  a  knowl- 
edge of  political  economy  in  all  candidates  for  admission  to  the 
bar,  and  that  some  of  our  best  law  schools  have  rendered  in- 
struction in  political  economy  at  least  accessible  to  law  stu- 
dents. It  should  be  a  part  of  every  law  course,  and  every 
candidate  for  admission  to  the  bar  should  be  compelled  to 
pass  a  thorough  examination  in  political  economy. 

I>ut  political  economists  need  law.  Perhaps  no  study  is 
more  useful  to  them.  It  is  a  splendid  training  for  the  mind. 
The  material  of  law  and  political  economy  is  the  same,  but 
in  law  we  have  a  ripe  experience  of  thousands  of  years  in 
analysis,  arrangement,  and  exact  statement.  It  gives  precise 
facts  about  present  institutions.  It  shows  the  basis  on  which 
progress  must  build.  It.  shows  how  deep  are  the  roots  of  our 
present  social  order.  It  emphasizes  the  importance  of  the 
statics  of  political  economy  and  corrects  a  tendency  toward 
revolutionary  rashness  which  is  the  opposite  of  all  true  prog- 


138  AX  IXTRODUVTIOy  TO  POLITICAL  ECONOMY. 

ress.  Finely  do  law  and  political  economy  supplement 
each  other. 

We  have  been  speaking  of  private  law,  which  has  to  do 
with  legal  relations  of  private  parties.  We  must  allude  to 
public  law,  which  is  concerned  with  the  relations  of  public 
bodies  to  one  another,  or  with  relations  of  public  bodies  and 
private  parties.*  Public  law  and  politics  constitute  political 
science.  The  relation  of  them  to  political  economy  is  suffi- 
ciently obvious.  Political  economy  places  aims  before  polit- 
ical science,  and  political  science  strives  to  realize  these  along 
with  its  other  ends.  Constitutions,  the  highest  expression 
of  public  law,  must  be  made  to  conform  to  industrial  condi- 
tions, and  this  conformity  can  be  brought  about  alone  by 
political  economy.  The  trouble  with  our  American  con- 
stitutions with  respect  to  taxation,  bankruptcy,  and  di- 
vorce and  marriage — and  divorce  and  marriage  imply  the 
weightiest  kind  of  economic  relations — is  that  they  have 
not  kept  pace  with  economic  changes,  and  the  difficulty  of 
doing  this  is  precisely  the  most  serious  danger  of  written 
constitutions.  That  is  the  weakness  of  our  federal  constitu- 
tion. Economic  life  changes  continually,  but  that,  practi- 
cally unchangeable,  cannot  be  made  to  conform  to  industrial 
conditions. 

International  law,  treating  of  the  relations  of  sovereign 
States,  is  a  department  of  law  which  is  constantly  increasing 
in  economic  importance.  Economic  relations  are  becoming 
international  with  a  truly  astounding  degree  of  rapidity. 
Competition  is  international,  and  we  have  world  markets  for 
staples.  Combinations  of  labor  and  capital  are  international. 
Government  itself  forms  international  postal  and  telegraph 
unions.  Switzerland  has  formally  proposed  to  other  gov- 
ernments international  factory  legislation  to  protect  women 
and  children,  and  other  wage-receivers,  so  as  to  place  manu- 
facturers in  different  lands  on  the  same  footing  in  compcti- 

*  Pee  the  excellent  work  on  Jun'sprudenrf,  by  T.  R.  TToll.-md,  fourth  edition, 
chapter  ix.  My  dctiuition  of  public  law  is  soiuowliat  broader  tlian 
Holl&ud'a. 


THE  UTILITY  OF  POLITICAL  ECONOMY.  13fJ 

tion.  A  body  of  international  law  with  effective  means  for 
its  enforcement  is  needed,  as  never  before,  for  the  organiza- 
tion and  regulation  and  preservation  of  international  eco- 
nomic relations. 


Read  chapter  i  of  Introduction  to  Bluntschli's  Modern 
State,  of  which  an  English  translation  exists.  Those  who 
read  German  will  do  well  to  consult  Cohn's  National  Otko- 
nomie,  second  chapter  of  the  Introduction.  Professor  Henry 
C.  Adams's  article  on  '•  Economics  and  Jurisprudence,"  in 
the  pamphlet  Science  Economic  Discussion,  may  be  read 
with  profit.  It  is  published  by  the  journal  Science  in  New 
York. 


PART  II. 

PRODUCTION. 


CHAPTER  I. 

INTRODUCTORY. 

Utilities. — Man  creates  no  new  matter.  Neither  the  farm- 
er nor  the  merchant  adds  one  atom  to  the  existing  material 
of  the  earth.  Yet  they  are  botli  properly  called  producers. 
What  do  they  produce?  Simply  quantities  of  utility.  And 
how  do  they  produce  quantities  of  utilities?  Simply  by  put- 
ting things  in  their  proper  places.  Man  can  only  move 
things,  and  when  he  moves  them  in  a  suitable  manner  he  cre- 
ates utilities.  "This  one  operation,"  says  John  Stuart  Mill, 
"of  putting  things  into  fit  places  for  being  acted  upon  by 
their  own  internal  forces  and  by  those  residing  in  other  nat- 
ural objects,  is  all  that  man  does  or  can  do  with  matter."* 

It  has  seemed  to  some  that  the  farmer  is  more  truly  a  pro- 
ducer than  the  manufacturer,  and  the  manufacturer  than  the 
merchant;  but  such  is  not  at  all  the  case.  All  of  these  in- 
dustrial classes  do  the  same  thing.  They  produce  utilities 
by  moving  the  places  of  things.  The  farmer  adds  nothing 
to  the  material  of  the  globe,  but  he  gives  direction  to  the 
forces  of  nature  so  that  existing  material  becomes  better 
adapted  to  the  wants  of  man,  ami  thereby  more  useful.  He 
drops  corn  into  the  earth,  and  thereby  puts  it  into  a  tit  place 
for  being  acted  upon  by  external  natural  forces.  From  time 
to  time  lie  removes  weeds  and  throws  earth  about  the  stalk 
which  grows  up,  ami  portions  of  earth, air,  and  moisture  take 
new  rela'ive  positions  and  the  result  is  again  corn,  and  more 
corn.  Changed  places  and  natural  forces  have  rendered 
things  more  useful.  All  this  while  man  has  done  nothing 
but  put  things  in  tit  places. 

The  manufacturer  changes  forms  and  combinations  of  raw 
*  Political  Economy,  Book  i,  chap,  i,  §  2. 


144  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

material  by  putting  things  into  fit  places,  and  likewise  pro- 
duces utilities.  The  merchant  similarly  takes  things  from 
places  where  they  are  less  useful  to  places  where  they  are 
more  useful.  lie  produces  utilities  as  truly  as  the  farmer  or 
manufacturer.  It  may  well  happen  that  the  utilities  pro- 
duced by  the  merchant  could  be  produced  with  a  smaller  ex- 
penditure of  economic  force,  and  that  by  a  better  organization 
of  the  factors  of  production  saving  could  be  secured  ;  or  it 
may  be  that  at  times  the  merchant  has  been  able  to  secure  a 
larger  return  for  the  production  of  a  given  quantity  of 
social  utility  than  the  farmer  ;  but  all  this  is  no  justification 
whatever  for  the  popular  impression  that  he  is  less  pro- 
ductive than  any  other  person  who  is  engaged  in  economic 
work. 

Production,  then,  means  the  creation  of  utilities  by  the 
application  of  man's  mental  and  physical  powers  to  the 
physical  universe,  which  furnishes  materials  and  forces. 
This  application  of  man's  powers  is  called  labor. 

Those  quantities  of  utility  which  result  from  labor  are 
called  economic  goods,  but  not  all  economic  goods  are  the 
result  of  labor.  Economic  goods  have  not  been  defined  thus 
far,  but  they  have  been  described  as  material  good  things. 
Probably  any  reader  of  this  book  would  call  a  vacant  lot  on 
Fifth  Avenue  in  New  York  City  a  material  good  thing,  even 
if  no  person  has  ever  expended  a  day's  labor  on  it.  It  is  de- 
sirable at  this  point  to  have  a  clear  idea  of  economic  goods, 
and  a  definition  is  offered.  We  will  begin  with  the  word 
good.  Every  (hint;  which  satisfies  a  human  want  we  call  a 
good  ;  and  here  on  the  threshold  of  our  science  we  see  how 
absurd  it  is  to  say  that  politico-economic  laws  are  inde- 
pendent of  man,  and  would  be  what  they  are  if  man  did 
not  live  on  the  earth.  We  cannot  <ret  half  \\av  through  our 

r"»  v  ~ 

definition  of  economic  cmods  before  we  have  brought  in  the 
human  element. 

Goods  we  divide  into  free  goods  and  economic  goods. 
Free  goods  are  those  which  exist  in  superabundance,  and  are 
offered  freely  to  every  one  without  charge.  Air  and  water 


INTRODUCTORY.  145 

are  usually  free  goods.  Land  in  a  new  country  is  frequently 
a  free  good. 

Economic  Goods  are  those  Goods  ichich  are  usually  and 
regularly  obtained  by  man  only  by  exertion,  and  ichich,  or 
the  use  of  which,  may  be  disposed  of  for  other  Goods. — They 
may  be  further  characterized  as  directly  or  indirectly  ex- 
changeable for  all  goods  which  come  on  the  market. 
After  money  comes  into  use  they  may  be  defined  as  goods 
which  exchange  for  money  or  as  goods  which  are  bought 
and  sold. 

A  few  points  require  further  explanation.  "  Usually  "  they 
are  obtained  by  exertion.  One  may  pick  up  a  diamond  or  a 
nugget  of  gold  upon  which  one  has  stumbled.  Mere  picking 
up  of  these  articles  cannot  properly  be  called  labor. 

Man's  Original  and  Acquired  Powers. — The  goods  or 
their  use  may  be  disposed  of  for  other  goods.  This  enables 
us  to  include  in  our  definition  both  material  and  immaterial 
goods,  like  a  person's  technical  skill  acquired  by  labor,  and 
often  very  productive.  The  central  point  of  our  science  is 
the  conception  of  man  in  his  relations  to  material  good  things, 
but  it  does  not  seem  practicable  to  exclude  utilities  fixed  and 
embodied  in  human  beings  from  the  rank  of  economic  goods, 
because  man  cannot  be  bought  and  sold.  Once  many  men 

O  f 

could  be  bought  and  sold,  and  they  then  took  their  place 
with  horses  and  oxen  among  material  goods.  Now  man  may 
sell  the  use  of  his  powers.  It  is  hard  to  draw  the  line,  but  it 
may  be  done,  with  sufficient  accuracy, by  keeping  in  mind  our 
central  conception.  We  would  not  speak  of  the  cultivation 
of  our  faculties,  merely  for  the  sake  of  our  own  better  devel- 
opment, as  economic  exertion  in  any  strict  sense,  although  it 
might  well  have  economic  consequences.  The  economic  life 
and  its  goods  are  subservient  to  man.  We  call  the  acquisi- 
tion of  a  technical  skill  an  economic  process,  because  it  has 
reference  to  the  creation  of  utilities  incorporated  in  material 
good  things.  The  direct  labor  expended  on  matter  we  may 
call  a  primary  economic  process,  and  that  labor  which  pre- 
pares us  to  expend  our  augmented  power  on  material  things 


US  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

to  render  them  useful,  or  more  useful,  we  ma}"  call  a  second- 
ary economic  process.  There  is  a  production  when  eco- 
nomic exertions  and  non-economic  exertions  meet,  as  in  the 
common-school  education  of  the  young.  There  are  such  bor- 
der lines,  where  discrimination  is  difficult  or  impossible,  in 
natural  sciences  as  well  as  in  social  and  mental  sciences,  but 
they  need  not  as  a  rule  occasion  much  difficulty. 

"Wealth. — Political  economists  have  usually  called  eco- 
nomic goods  wealth,  but  this  is  objectionable,  because  wealth, 
in  ordinary  language,  generally  means  large  quantities  of 
ei-onomic  goods,  either  absolutely,  in  proportion  to  one's  wants 
or.  as  is  oftener  the  case,  relatively,  with  reference  to  the 
possessions  of  others.  Wealth  is  also  used  often  to  denote  the 
economic  goods  belonging  to  an  organized  society  of  men, 
especially  of  a  nation.  We  compare  the  wealth  of  England 
with  the  wealth  of  France  or  Germany.  We  would  hardly 
say  Germany  is  not  a  wealthy  country,  but,  rather,  not  a  rich 
country.  Notwithstanding  the  ambiguity,  wealth  has  so 
generally  been  used  for  economic;  goods,  and  is  so  conven- 
ient a  ti-rm,  so  much  more  so  than  the  larger  term  of  two 
words,  that  it  may  not  be  possible,  perhaps  not  even  desir- 
able, to  displace  it  entirely.  The  two  terms  can  be  used  in- 
terchangeably in  many  cases,  care  being  taken  to  employ  eco- 
nomic goods  wherever  it  will  make  our  meaning  clearer  or  help 
to  avoid  misunderstanding. 

The  Individual  and  Society. — One  distinction  runs  all 
the  way  through  political  economy,  and  that  is  the  distinc- 
tion between  the  social  and  the  individual  stand-point.  We 
have  consequently  to  distinguish  between  social  and  individ- 
ual wealth,  for  what  is  wealth  to  the  individual  is  often  not 
wealth  to  society. 

Many  illustrations  offer  themselves.  A  mortgage  is  indi- 
vidual wealth.  If  the  claim  it  stands  for  is  extinguished 
society  is  neither  richer  nor  poorer.  Similarly  all  state, 
municipal,  and  federal  bonds  represent  claims  on  the  indus- 
try of  the  people.  If  all  these  bonds  should  be  destroyed, 
the  bondholders  as  individuals  \voull  suffer  los?,  but  society 


INTRODUCTORY.  147 

as  a  whole  would  be  neither  richer  nor  poorer,  and  society  ex- 
clusive of  bondholders  would  have  gained  at  their  expense. 

Census  Estimates  of  Wealth.— All  census  returns  of 
wealth  are,  in  many  respects,  of  necessity  defective  and  mis- 
leading. First,  census  returns  are  made  in  money.  If  com- 
modities are  very  abundant  the  price  will  be  low,  but  the 
real  wealth  of  the  country  is  great.  Let  us  suppose  the 
quantity  of  cotton  cloth  of  which  account  is  taken  doubles 
between  two  censuses,  and  that  the  price  falls  one  hair'. 
The  wealth  of  the  country  has  apparently  not  increased  at 
all,  but  in  reality  it  has  doubled,  because  wealth  consists  in 
quantities  of  useful  things.  Second,  private  wealth  is  in- 
cluded, which  is  not  public  wealth,  but  which  often  resem- 
bles a  taxing  power.  This  is  the  case  with  many  franchises 
recklessly  granted  to  private  corporations.  An  illustration 
will  help  to  make  the  author's  meaning  clear.  Baltimore 
street-car  companies  pay  to  the  city  for  the  maintenance  of 
public  parks  nine  dollars  out  of  every  hundred  they  collect 
in  addition  to  ordinary  State  and  city  taxes.  Let  us  suppose 
this  special  payment  for  the  use  of  the  streets  abolished;  it 
would  immensely  increase  the  value  of  the  street-car  com- 
panies' franchises,  and  they  would  figure  in  census  reports 
for  a  larger  amount,  and  there  would  be  an  apparent  but 
altogether  illusory  increase  in  national  wealth.  The  com- 
panies would  simply  have  gained  at  the  expense  of  the  rest 
of  the  community.  The  telegraph  in  other  civili/cd  Coun- 
tries than  our>  is  public  property,  and  can  only  be  valued  at 
the  cost  of  the  plant,  land,  building-,  etc.,  while  in  the 
United  States  there  is  an  enormous  additional  valuation  on 
account  of  the  fact  that  the  telegraph  is  private  property,  and 
that  in  the  nature  of  things  it  is  a  monopoly.  Apparently 
in  this  respect  we  are  far  richer  than  countries  like  France 
and  Germany,  but  again  census  returns  are  misleading.  We 
are  poorer  in  many  ways. 

Take  our  own  post-office.  It  can  figure  in  census  returns 
only  for  actual  value  of  its  plant,  while  if  it  should  be  made 
over  to  a  private  corporation  it  would  soon  have  a  capitaliza- 


148  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

tion  of 'hundreds  of  millions  of  dollars.  Apparently  the 
wealth  of  the  country  would  be  increased,  but  really  we 
would  be  poorer,  for  we  should  be  obliged  to  support  ;m 
army  of  highly  paid  officials,  a  host  of  costly  attorneys,  and 
an  expensive  and  demoralizing  lobby  to  shape  post-office  leg- 
islation for  private  ends. 

Most  countries  have  granted  limited  charters  to  gas  com- 
panies, street-ear  corporations,  steam  railway  companies,  and 
the  like.  Very  often,  at  the  expiration  of  a  given  period,  as 
thirty,  fifty,  or  ninety  years,  the  entire  property,  without  rec- 
ompense, passes  over  to  the  people,  and  becomes  public,  like 
our  post-office.  This  is  the  case  with  street-cars  in  Glasgow, 
Scotland;  and  Berlin;  Germany,  and  steam  railways  in  France 
and  Austria.  Elsewhere  the  right  is  reserved  to  purchase 
property  at  the  expiration  of  a  prescribed  period,  paying  for 
the  plant  only,  at  an  appraised  valuation,  giving  nothing  for 
the  franchise.  This  prevents  an  inflation  of  values,  but  en- 
riches a  country. 

The  results  of  the  household  work  of  women  do  not  ap- 
pear in  the  census  returns,  and  yet  they  include  a  large  part 
of  the  utilities  created  every  year  in  a  country.  If  bread 
should  universally  come  to  be  baked  outside  the  home  it 
would  increase  the  wealth  of  the  country  as  reported  in  the 
census  returns. 

We  have  isolated  production  and  social  production,  do- 
mestic production  and  production  of  economic  goods  for  ex- 
changes, all  of  which  expressions  have  been  sufficiently  ex- 
plained in  the  previous  part  of  this  work.  We  have  also 
individual  and  social  production  in  a  sense  just  described  in 
this  chapter.  Individual  production  is  sometimes  social  de- 
struction of  economic  goods.  A  proprietor  of  a  lottery  may 
produce  things  valuable  to  him  and  acquire  wealth,  while  his 
activity  is  from  a  social  stand-point  pestiferous.  The  same 
thing  may  be  said  of  the  class  of  saloon-keepers,  and  of  all 
those  unhappy  wretches  who  minister  to  vice.  We  have 
also  the  familiar  terms  of  production  on  a  large  scale  and  oil 
a  small  scale,  well  enough  understood. 


LVTR  OD  UCTOR  Y.  149 

Over-production  and  Under-consumption.  —  The 
purpose  of  production  is  consumption,  and  if  more  is  pro- 
duced more  must  be  consumed.  Power  to  consume  is  meas- 
ured by  purchasing  power,  and  power  of  consumption  sets  a 
limit  to  production.  There  is  no  such  thing  as  general  over- 
production, for  more  economic  goods  of  all  kinds  have  never 
been  produced  than  men  really  need  to  satisfy  their  legiti- 
mate wants.  On  the  contrary,  not  enough  has  ever  yet  been 
produced  for  this  purpose.  Sometimes  production  does  not 
go  forward  evenly,  and  there  is  an  undue  amount  of  labor 
and  c  ipital  directed  to  certain  pursuits,  but  until  all  men  are 
well-clothed,  housed,  and  fed,  and  furnished  with  material 
appliances  for  their  higher  life,  like  books,  pictures,  musical 
instruments,  church  buildings,  etc.,  it  will  be  a  manifest  ab- 
surdity to  talk  about  a  general  over-production.  When 
there  is  almost  universal  difficulty  in  disposing  of  goods  pro- 
duced the  real  phenomenon  is  described  by  under-consump- 
tion.  Men  want  these  goods;  they  are  willing  to  give  serv- 
ices in  exchange  for  them,  but  they  cannot  dispose  of  their 
services,  and  consequently  they  lack  purchasing  power.  A 
glut  in  the  market  always  means  underconsumption.  This 
is  one  of  the  sad  and  curious  features  of  the  life  of  the  mod- 
ern socio-economic  organism.  Its  pm-ts  do  not  always  fulfill 
their  functions  harmoniously;  frequently  parts  are  partially 
incapacitated  and  the  bodv  is  in  a  diseased  condition. 

Some  have  supposed  that  luxury  and  extravagance  are 
able  to  remedy  gluts  in  the  markets,  but  this  is  impossible. 
On  the  contrary,  they  frequently  brinir  about  a  diseased 
condition  of  industrial  society  which  leads  to  gluts.  At 
any  rate,  if  any  one  has  an  excess  of  purchasing  power,  it 
is  always  easy  to  transfer  it  to  some  person  or  institution 
capable  of  using  it  for  the  benefit  of  humanity. 

Other  Departments  of  Political  Economy. —  Pro- 
duction taken  in  its  widest  sense  includes  every  thing  in 
political  economy  except  consumption  of  goods.  The  ac- 
quisition and  employment  of  goods  embraces  the  entire  eco- 
nomic activity  of  man.  "  Transfers  of  goods,"  dealing  with 

*•  C5  O 


750  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

the  circulation  of  goods,  and  the  agencies  through  which 
this  is  effected,  is  one  part  of  production.  Distribution  is 
in  early  stages  of  society  nearly  identical  with  production, 
aiul  is  so  to  some  considerable  extent  to-day.  What  a  man 
produces  constitutes  in  the  earliest  stages  of  economic  de- 
velopment his  income.  A  man  catches  two  fishes  in  a  day, 
and  these  are  his  income.  It  has  been  said  that  even  in 
modern  society  there  are  no  separate  organs  of  the  economie 
body  concerned  with  distribution.  Distribution  may  in  the 
main,  perhaps,  be  said  to  follow  naturally  from  the  existing 
system  of  production.  Yet  this  is  not  wholly  so.  Laws 
and  institutions  modify  more  or  less  consciously  the  distri- 
bution of  wealth.  This  is  the  avowed  purpose  of  the  French 
law  of  inheritance,  which  divides  the  bulk  of  a  father's 
property  equally  among  his  children,  regardless  of  his 
wishes  in  the  matter.  Moreover,  as  production  is  at  present 
carried  on  under  our  laws  of  property,  many  people  who 
by  their  own  efforts  contribute  nothing  whatever  to  produc- 
tion enjoy  a  large  amount  of  what  is  produced. 

HiKincc  treats  of  the  acquisition  and  employment  of 
means  by  governments,  but  there  are  many  peculiarities  con- 
cerning the  housekeeping  of  governments  which  render  it 
advisable  to  treat  this  subject  by  itself,  and  not  to  distribute 
the  matter  among  other  main  parts  of  political  economy.  We 
have,  therefore,  adhered  to  the  traditional  distribution  of  the 
matter  into  main  parts  for  convenience,  admitting  that  it  is 
not  strictly  logical  to  make  the  divisions,  production,  distribu- 
tion, transfers,  consumption,  and  finance,  as  if  these  were 
equal  in  rank.  It  would  be  more  lo<_n<-al,  perhaps,  to  place 
transfers  and  distribution  under  production  as  sub-heads, 
but  it  would  be  a  more  cumbrous  arrangement,  and  strict 
IOLTIC  is  sacrificed  to  convenience. 


On  the  productivity  of  commerce,  and  the  erroneous  opin- 
ion that  agriculture  alone  is  productive,  read  chapter  iv  in 
Kly's  Problems  <>f  T»~d«ij. 


CHAPTER    II. 

MOTIVES  OF   ECONOMIC  ACTIVITY. 

"Wants. — It  may  be  said,  in  a  word,  that  the  wants  of  man 
supply  his  economic  motives.  This  is  true,  but  it  is  too 
vague  to  be  serviceable.  Man's  wants  are  of  ;ill  kinds. 

O 

They  include  pleasurable  exercise  of  our  faculties,  the  disci- 
pline of  toil,  the  physical  means  for  the  support  of  one's 
own  life,  the  physical  means  for  the  maintenance  of  the 
existence  of  others,  love,  friendship,  religion,  etc.,  etc.  No 
man  except  a  foolish  or  insane  person  engages  in  economic 
activity  except  to  satisfy  some  kind  of  want.  There  is  a 
purpose  in  the  action  of  rational  men. 

\Ve  may  speak  about  one's  own  individual  wants,  of  the 
wants  of  other  individuals,  and  of  the  wants  of  States.  All 
of  these  orders  of  wants  supply  motives. 

Self-interest  is  one  economic  motive,  and  certainly  a  most 
powerful  one.  It  is  not  exclusive,  and  in  itself  it  cannot  ex- 
plain the  economic  life  of  nations,  as  has  been  already  seen. 
Self -interest  acts  differently  under  different  circumstances. 
It  will  in  India,  perhaps,  lead  a  man  to  do  one  thing,  and  in 
England  quite  another  thing.  But  what  do  we  mean  l>v 
self-interest  ?  Assuredly  not  always  the  same  thing.  Self- 
interest  among  savages  mav  include  simply  an  individual. 

O  «  i       » 

It  is  taken  for  granted  with  us  that  a  man's  self-interest  in- 
cludes wife  and  children.  "\Vhcn  we  say  a  man  is  prompted 
in  the  business  world  by  self-interest  we  assume  that  his 
activity  is  directed  to  the  benefit  of  his  own  immediate 
family  at  least.  Self-interest  thus  includes  a  narrow  circle 
when  reduced  to  its  lowest  terms,  and  this  shows  itself  not 
merely  in  using  money  earned,  but  in  productive  processes; 
sometimes  even  unjustly,  as  when  relationship  unduly  affects 


152  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

salaries,  number  of  holidays,  and  other  privileges.  But  the 
circle  of  self-interest  is  capable  of  indefinite  expansion  until 
it  embraces  a  town,  a  county,  a  State,  a  nation.  If  self- 
interest  becomes  so  broad  in  its  scope  as  to  identify  self  with 
humanity  as  now  with  one's  family,  we  have  Christian  al- 
truism. \Vhat  is  wanted  is  to  extend  the  circle  of  self- 
interest. 

Self-interest  is  not  a  bad  thing.  It  is  a  good  stimulus 
when  it  assumes  its  proper  form.  Self-interest  is  compatible 
with  a  generous  consideration  for  the  material  welfare  of 
others.  I  am  one  of  mankind,  and  my  love  for  humanity 
includes  myself.  If  I  neglect  the  care  and  development 
of  myself  I  injure  humanity.  The  humanitarian  spirit  in- 
cludes both  self-love  and  love  of  one's  fellows.  But  self-in- 
terest may  become  diseased,  and  then,  placing  self  above 
others  and  neglecting  others,  it  becomes  selfishness,  which  a 
moral  teacher  has  called  the  true  source  of  all  sin. 

Patriotism,  is  a  motive,  and  a  powerful  one,  especially  in 
tiiiK-s  of  great  awakening  of  national  spirit. 

Religion  renders  service  a  duty,  and  pronounces  the  man 
who  lives  in  this  world  without  rendering  himself  personally 
useful  in  the  work  of  mankind  a  thief  and  a  robber.  It  is 
a  powerful  economic  motive,  particularly  in  the  highest 
nature's. 

Self-Interest,  Brotherly  Love,  Public  Spirit. — Pro- 
fessor Wagner,  of  Berlin,  has  from  a  somewhat  different 
stand-point  spoken  of  three  principles  in  national  economic 
life,  to  each  of  which  he  ascribes  a  special  motive.  There  is 
the  principle  of  individual  and  private  enterprise,  in  which 
self-interest  is  dominant  ;  there  is  the  principle  of  public 
activity,  the  social  principle  as  opposed  to  the  individual  prin- 
ciple of  private  business.  Tins  second  principle  corrects, 
modifies,  and  rounds  out  the  first.  Private  and  public  ac- 
tivity supplement  each  other.  We  have  finally  the  third 
principle,  that  of  brotherly  love,  the  caritative  principle, 
tilling  in  gaps,  supplying  omissions,  mitigating  the  severities 
<ji  individual  and  of  public  action.  Self-interest,  brotherly 


MOTIVES  OF  ECONOMIC  ACTIVITY.  153 

love,  and  public  spirit  are,  then,  three  motives  of  economic 
activity,  but  they  are  not  exclusive  one  of  the  other.  They 
pass  gradually  over  into  one  another  and  are  often  indis- 
tinguishable. 

Desirable  and  Undesirable  "Wants. — We  may  classify 
wants,  further,  into  desirable  wants  and  undesirable  wants. 
Wants  satisfied  by  those  things  which  serve  as  a  basis  for 
the  full  and  harmonious  development  of  our  faculties  are  de- 
sirable wants  ;  wants  satisfied  by  other  material  things 
which  are  not  positively  helpful  or  are  positively  injurious  are 
undesirable  wants.  Wholesome  food,  comfortable  clothing, 
commodious  shelter,  books,  musical  instruments,  fine  works 
of  art,  are  all  things  which  minister  to  desirable  wants. 

Luxury. — Luxuries  are  things  which  minister  to  siu-li  un- 
desirable wants  as  love  of  display,  vanitv,  or  selfish  desire  to 
exalt  one's  self  above  one's  fellows,  and  thus  to  produce  sep- 
aration. We  generally  think  of  luxuries  as  costly  things, 
but  a  wanton  and  luxurious  expenditure  for  dress  may  in  a 
vain  woman's  life-time  amount  to  far  less  than  the  perfectly 
justifiable  expenditures  of  her  neighbor  to  promote  in  her- 
self, her  family,  and  others  an  appreciation  and  love  of  the 
beautiful.  Proportionality  is  one  element  in  determining 
whether  a  thing  is  a  luxury  or  not.  If  the  real  gain  to  one's 
self  corresponds  to  hi- outlay  it  cannot  be  called  a  luxury. 
One  test  is  to  ask  this  question  :  "  Would  I  myself,  if  nor- 
mally constituted,  obeying  ethical  principles,  be  willing  to 
undergo  the  toil  and  sacrifice  that  article-  has  cost  for  the 
pleasure  it  affords?"  The  answer  must  be  in  the  negative 
in  the  case  of  articles  like  Belgian  hand-made  lace,  which 
is  the  product  of  long,  weary  toil  of  poorly  paid  girls  who 
often  lose  their  eyesight  in  this  work.  An  economist*  has 
defined  luxury  thus:  ''Luxury  is  whatever  contributes 
chiefly  to  enjoyment  rather  than  to  a  better  training  of  our 
powers.  Luxury  is  defensible  only  in  so  far  as  it  does  not 
hinder  the  development  of  a  better  manhood  in  us  and  in  all 
those  whom  we  could  influence." 

*  Professor  E.  \V.  Bemia,  of  Vandcrbilt  University. 


154  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Public  and  Private  Luxury. — Proportionality  will  show 
that  expenditures  by  the  public  and  for  the  public  and  by 
private  individuals  for  the  public  are  justifiable  which  would 
be  altogether  unjustifiable  for  a  private  party.  What  is  lux- 
ury for  a  private  person  is  not  at  all  luxury  for  the  public. 
Grand  public  buildings,  which  lift  up  and  inspire  the  peo- 
ple, magnificent  art  galleries,  grand  universities,  magnificent 
common  schools  and  academies  are  excellent  things,  and  the 
toil  and  sacrifice  which  they  require  are  well  repaid  in  the 
returns  made  in  the  higher  and  better  life  <>f  the  people. 
Wants  to  which  these  minister  are  among  the  best  national 
wants.  It  is  only  in  a  morally  diseased  condition  of  a  people's 
consciences  that  lavish  outlays  will  be  approved  for  private 
individuals  and  parsimony  prescribed  for  the  public. 

A  defense  is  sometimes  offered  for  private  luxury  which  is 
so  manifestly  weak  that  it  scarcely  deserves  attention.  It 
is  said,  "  It  gives  opportunity  to  work."  The  same  expendi- 
ture for  humanity  would  obviously  give  an  equal  opportunity 
to  work. 

Moralists,  philosophers,  statesmen,  and  religious  teachers 
have  all  united  to  condemn  luxury,  and  to  it  has  very  gen- 
erally been  attributed  the  downfall  of  states.  Among  those 
who  have  spoken  strongly  on  luxury  we  may  mention  Plato 
and  Ari-to!  !e,  all  the  Church  fathers,  and  the  greatest  of  the 
mcdueval  philosophers,  Thomas  Aquinas,  the  Scotch  philos- 
opher Adam  Ferguson,  of  the  last  century,  and  M.  de  La\e- 
leye  in  our  o\vn.  There  can  be  no  kind  of  doubt  as  to  the 
teaching  of  Christianity  on  this  subject.  We  may  divide 
those  things  which  we  want  into  necessaries,  comforts,  con- 
veniences, and  luxuries.  We  satisfy  our  own  wants  in  the 
order  named.  .Manifestly  we  are  not  even  making  an  effort 
to  love  our  neighbors  as  ourselves  when  we  indulge  in  luxuries 
so  long  as  they  want  the  necessaries,  comforts,  or  even  con- 
veniences of  life. 

Among  the  most  pernicious  things  which  satisfy  undesir- 
able, wants  may  be  mentioned  tobacco,  opium,  intoxicating 
beverages.  The  best  that  can  bo  claimed  for  even  a  moderate 


MOTIVES  OF  ECONOMIC  ACTIVITY.  155 

use  of  these  apart  from  medicinal  purposes  is  that  they  do 
no  positive  harm  to  the  individual's  physical  well-being,  and 
that  they  afford  at  least  a  temporary  solace,  and  tend  to 
sociability.  The  following  figures  will  show  the  enormous 
amount  annually  expended  for  these  commodities,  and  will 
suggest  the  question,  even  suppose  no  excess  or  otherwise 
injurious  consequence,  could  not  all  these  resources  be  better 
employed  ? 

The  total  amount  of  distilled  spirits  consumed  in  the 
United  States  in  the  year  1887  was  71,064,733  gallons.  The 
consumption  of  malt  liquors  was  717,748,854  gallons,  and  the 
consumption  of  wines  was  32,618/290  gallons.  Of  course  we 
cannot  tell  just  how  much  was  paid  by  the  consumers  for  this 
immense  flood  of  intoxicants,  which,  if  poured  together,  would 
till  a  channel  twenty  feet  in  depth,  twenty  feet  in  width,  and 
forty-six  miles  long,  but  many  estimates  have  been  made 
both  by  those  who  defend  and  those  who  oppose  the  use  of 
liquors.  They  place  the  cost  at  from  §700,000,000  to  81,000,- 
coo, 000.  If  we  deduct  the  liquors  which  are  used  in  the  arts, 
and  for  other  purposes  besides  that  of  drinking,  it  is  probable 
that  the  first  estimate,  namely,  seven  hundred  millions  of 
dollars,  is  not  too  high  a  figure  to  represent  the  amount  of 
money  that  is  yearly  paid  for  intoxicants  which  are  used  as 
bevei-ages.  This  is  eq'ial  to  an  expenditure  of  twelve  dollars 
for  every  man,  woman,  and  child  in  our  country. 

In  comparing  the  amounts  expended  for  liquors  with  what 
our  people  expend  for  other  purposes  there  have  been  many 
misleading  estimates  made  which  in  the  long  run  can  be  of 
no  real  service  to  the  cause  of  temperance.  For  instance, 
some  persons  in  comparing  the  cost  of  drinks  with  the  cost 
of  all  the  food  consumed  in  the  United  States  have  placed 
the  former  at  the  not  extravagant  amount  of  about  nine 
hundred  millions  of  dollars,  but.  the  cost  of  food  they  find  to 
be  only  nine  hundred  and  sixty-three  millions  of  dollars. 
At  this  estimate  the  cost  of  liquors  would  be  fifteen  dollars 
per  capita,  while  the  cost  of  food  would  be  only  sixteen 
dollars  for  cvcrv  man,  woman,  and  child  in  the  United 


156  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

•States.  There  is  an  important  difference  overlooked,  namely, 
that  nearly  all  of  the  liquor  consumed  comes  on  the  market 
and  is  there  estimated  in  dollars  and  cents,  while  perhaps 
less  than  one  fourth  the  food  consumed  is  brought  under  the 
conditions  necessary  for  a  money  valuation. 

It  is  important  to  note  that  if  the  seven  hundred  million 
dollars  now  spent  for  grain  in  the  form  of  liquors  were  ex- 
pended for  food  and  other  farm  products  to  satisfy  the  ra- 
tional wants  of  the  thousands  of  families  who  are  rendered 
destitute  by  intemperance  it  would  purchase  at  least  seven 
times  as  much  grain  in  the  form  of  flour  as  it  does  in  that  of 
liquor;  because  it  is  true  with  regard  to  liquors,  as  with  all 
luxuries,  that  the  amount  of  raw  material  used  in  their  pro- 
duction is  far  less,  compared  with  their  cost  to  the  consumers, 
than  it  is  in  any  of  the  other  products  that  satisfy  human 
wants.  Thus  we  can  see  that  those  farmers  who  think  that 
the  liquor  industry  creates  a  demand  for  their  commodities, 
and  those  brewers  and  distillers  who  endeavor  to  instill  this 
belief,  are  both  deceived  and  deceivers,  I  low  much  better 
it  would  be  if  farmers  could  secure  high  prices  for  their 
grain  and  other  products  by  ministering  to  those  rational 
and  higher  wants  which  strengthen  human  nature  and  enable 
the  consumers  to  produce  in  turn  a  greater  abundance  of 
wealth,  rather  than  by  satisfying  the  demands  of  base  appe- 
tites that  degrade  men  and  lessen  the  community's  wealth- 
producing  power!  ft  is,  of  course,  obvious  that  if  men  spend 
less  for  liquors,  tobacco,  opium,  and  the  like,  they  will  have 
so  much  more  to  spend  for  other  things,  and  the  oppor- 
tunities for  employment  will  not  be  at  all  lessened.  On 
the  contrary,  as  other  expenditures  are  more  likely  to  be 
productive,  opportunities  for  employment  will  inevitably  be 
multiplied. 

The  indirect  cost  of  liquors  to  the.  community  at  large  is 
far  more  tremendous  and  impossible  of  estimation  than  the 
direct  cost.  We  all  have  to  pay  for  the  support  of  the  armies 
of  policemen,  detectives,  lawyers,  judges,  whose  chief  occu- 
pation grows  from  the  use  of  intoxicants  ;  for  prisons,  peni- 


MOTIVES  OF  ECONOMIC  ACTIVITY.  157 

tefltiaries,  insane-asylums,  alms-houses,  fifty  to  eighty  per 
cent,  of  whose  occupants  are  the  victims,  direct  or  indirect, 
of  intemperance  ;  while  all  share  in  the  loss  of  industrial 
power  that  comes  from  weakened  constitutions,  dizzy  heads, 
and  extravagance.  Many  books  and  articles  have  been  writ- 
ten and  many  public  speeches  have  been  made  upon  these 
manifold  and  visible  evils.  Those  who  suffer  the  most  from 
drink  are  the  working  classes,  and  they  are  also  those  who 
cannot  conceal  their  excesses  and  misfortunes.  But  it  is  a 
mistake  to  suppose  that  working-men  alone  furnish  the 
drunkards,  or  that  there  are  not  great  numbers  of  earnest 
temperance  men  among  them.  The  rich  have  their  social 
clubs  where  intoxicants  pi- r form  their  work  as  heinously  as 
they  do  iu  the  gutters,  but  less  publicly.  The  only  social 
men's  clubs  in  the  United  States  without  a  bar  attached  are, 
so  far  as  the  writer  has  observed,  working  men's  clubs. 
These  appear  to  be  generally  devoid  of  that  institution. 
If  there  is  a  fashionable  club-house  in  the  United  States 
where  intoxicating  beverages  are  not  sold  the  writer  has 
yet  to  discover  it.*  While  intemperance  is  a  monstrous 
evil,  and  cannot  be  too  earnestly  fought  against,  we  should 
not  fail  to  sec  that  it  is  at  the  same  time  both  an  effect 
and  a  cause.  Farmers  arc  proverbially  a  temperate  class  of 
people,  and  when  we  look  for  the  worst  effects  of  intem- 
perance we  go  to  our  crowded  cities  and  great  industrial 
centers.f  But  here  we  find  industrial  and  social  conditions 
wh'u-h  force  us  to  believe  that,  until  they  are  remedied,  we 
can  look  for  no  lasting  growth  of  temperance  or  strengthen- 
ing of  character:  on  the  one  side,  immense  wealth,  with  its 

*  Since  writing  tlio  above  tlic  author  is  told  thru  the  Winihrop  Club,  of 
Springfield,  Mass.,  \vhicli  has  elegant  rooms  and  appointments,  and  includes 
must  of  the  lead  in;.:  bii-incss  and  professional  men  of  the  citv,  has  no  bar, 
and  no  liquor  of  any  kind  is  sold  or  used  in  its  rooms.  The  opinion  is  ex- 
pressed that  there  are  other  sneh. 

f  A  friend  writes  to  ihe  author  as  fallows:  ''My  observation  is  that  in 
the  Kastern  States  farmers  in  regions  remote  from  (•(.•liters  of  social  activity 
are  much  addicted  to  drink.  The  cider-brandy  distillery  has  long  been  the 
curso  of  Litc-hfield  County,  Connecticut." 


158  AN  INTRODUCTION  TO  POLITICAL  ECONOMY 

temptations  of  pride  and  luxury  ;  on  the  other,  crowds* 
tenements,  hot  and  noxious  in  summer,  always  loathsome  and 
repulsive,  occupied  by  those  who  do  not  know  whether  they 
v/ill  find  work  that  day  or  not.  Their  condition  is  often  the 
effect  of  their  former  intemperate  habits,  and  in  turn  it 
drives  them  and  their  children  into  further  depths  of  inebri- 
ety. An  important  reason  for  the  craving  for  intoxicants, 
as  is  shown  by  one  of  the  foremost  of  American  physiolo- 
gists, is  the  lack  of  sufficient  food  or  of  a  sufficient  variety 
of  wholesome  food,  and  especially  poorly  cooked  food.  These 
and  many  other  facts  with  regard  to  the  economic  condi- 
tions of  our  day  admonish  us  that  the  thoughtful  temper- 
ance advocate  must  embrace  in  his  efforts  both  temperance 
and  industrial  reforms. 

Another  serious  waste  of  wealth  results  from  the  use  of 
tobacco.  In  1880  there  were  743, -UH)  acres  of  laud  devoted 
to  the  production  of  this  weed,  and  the  quantity  of  cigars, 
cigarettes,  and  cheroots  consumed  by  the  American  people  in 
the  year  1880  reached  the  enormous  number  of  2,821,770,282, 
representing  an  outlay  on  the  part  of  consumers  of  at  least 
$140,000,000.  In  the  year  1888  the  number  probably  in- 
creased to  over  three  billions,  or  more  than  fifty  lor  every 
human  being  in  the  country.  The  tobacco  that  was  con- 
sumed by  chewing  and  in  the  form  of  snuff  was,  in  1880, 
13G,275,S3.5  pounds,  at  a  cost  to  the  consumers  probably  of 
$70,000,000.  The  indirect  loss  resulting  from  the  use  of 
tobacco  is  not  so  great,  nor  are  its  effects  upon  the  con- 
sumers so  disastrous  as  is  the  c'ise  in  the  consumption  of 
liquors,  but  it  is  at  least  doubtful  whether  the  enormous  out- 
lay shown  by  the  above  figures  is  compensated  by  any  in- 
crea^ed  happiness  of  the  people. 

The  opium  habit  is  said  to  be  rapidly  growing  in  America. 
Its  effects  are  even  worse  than  those  of  alcoholic  intemper- 
ance, destroying  both  the  mind  and  body,  and  transforming 
its  victims  from  productive  members  of  the  community  into 
a  public  burden. 

There  are  other  objects  of  foolish   and  harmful  consump- 


MOTIVES  OF  ECONOMIC  ACTIVITY.  159 

tion.  How  often  is  the  usefulness  of  women  destroyed  or 
lessened  by  extravagant  display  of  jewelry  and  precious 
stones  which  minister  only  to  vanity  and  envy  ! 


Those  who  have  access  to  a  tile  of  the  Popnlir  Science 
Monti dy  will  do  well  to  read  an  article  on  ''  Morals  of  Lux- 
ury "  which  appeared  in  ihat  magazine  for  March,  1881,  by 
M.  de  Laveleye.  Re  id  also  his  remarks  on  luxury  in  his 
Elements  of  Political  Economy,  Book  IV  chapter  ii,  §  1.  A 
French  author,  M.  Baudrillart,  has  written  a  history  of  lux- 
ury in  four  volumes — JUstoire  dtt  Ln.ee,  Prlr'e  et  Public. 
Sidgwick's  History  of  JZt/u'ctt,  chapter  iii,  may  be  consulted 
on  the  ideas  of  the  early  Church  on  luxury.  The  first 
volume  of  Roscher's  Political  J^i-ononiy  has  been  translated 
into  English — divided  into  two  volumes  in  the  translation — 
and  chapter  ii  of  Book  II  treats  of  luxury,  giving  an  histor- 
ical sketch  with  many  valuable  references.  It  will  be  observed 
that  various  definitions  of  luxury  have  been  given.  Of  course 
it  can  be  so  defined  as  to  include  expenditures  that  are  praise- 
worthy-. 


CHAPTER   III. 

THE   FACTORS   OF   PRODUCTION. 

THERE  are  three  factors  of  production,  of  which  two,  nature 
and  labor,  are  primary,  and  the  third,  capital,  is  secondary. 
We  will  consider  these  brieHy  in  the  order  named. 

1.  Nature. — The  part  played  by  nature  in  product  ion  has 
already  been  discussed  at  some  length,  in  Part  I  of  this  book, 
under  the  head  of  territory  as  one  of  the  two  main  factors 
which  make  up  the  national  economy,  the  other  being  the 
factor  man.  We  include  under  nature  all  natural  forces  used, 
as  the  wind,  the  movement  of  water,  attraction  of  gravitation, 
cohesion,  etc'.,  etc.  Many  of  these  things  furnished  by  nature 
are  free  goods  and  not  economic  goods.  Nature,  economically 
considered,  is  generally  called  simply  land,  because,  of  what 
belongs  to  external  nature,  it  is  with  land  that  we  have  prin- 
cipally to  do  in  political  economy.  It  must,  however,  be  ob- 
served that  land  has  a  very  broad  meaning,  and  includes  what 
is  below  the  surface  of  the  earth,  and  u  ater  so  far  as  it  is 
appropriated  by  private  parties;  also  in  some  respects  the 
entire  surface  of  the  earth.  This  factor  is  in  early  stages 
generally  common  property,  but  in  later  stages  of  life  it  has 
been  private  property,  and  a  return  for  its  use  has  been 
secured  by  private  individuals,  or,  in  cases,  by  the  public 
when  owned  by  the  public  and  leased  to  private  parties. 
The  return  which  land  in  itself,  apart  from  capital  or  labor, 
yields  is  called  rent.  This  is  pure  rent,  or  economic  rent, 
which  is  different  from  rent  as  ordinarily  understood,  for 
rent  in  popular  usage  includes  recompense  for  the  other  fac- 
tors of  production.  Pure  rent  can  best  be  observed  in  cities, 
where  it  is  the  annual  value  of  lots  on  which  buildings 
stand.  A  large  portion  of  the  land  of  Baltimore  Philadel- 


THE  FACTORS  OF  PRODUCTION.  161 

phia,  and  London  is  owned  by  men  who  do  not  own  the 
buildings  and  other  improvements  but  receive  from  owners 
of  improvements  an  annual  rent. 

Land  renders  three  services  to  production  :  first,  it  gives 
a  "standing  place."  It  is  something  on  which  we  can 
rest  and  move  about  while  conducting  productive  processes. 
Mere  space  in  itself  is  often  extremely  valuable,  as  can  be 
seen  in  the  case  of  city  real  estate;  and  as  popidat ion  is  rap- 
idly growing,  and  as  a  continually  increasing  proportion  of 
the  population  dwells  in  cities,  this  service  is  constantly  lie- 
coming  more  important,  and  the  return  in  rent  will  probably 
augment  rapidly  for  a  long  time  to  come.  Second,  hind  con- 
tains the  element  needed  by  plant-life,  and  thus  serves  agri- 
culture. We  call  this  property  of  the  soil  its  fertility. 
Third,  land  contains  natural  products  below  the  surface  of 
the  soil,  like  coal,  natural  gas,  petroleum,  iron,  gold,  silver, 
and  other  metals.  These  are  the  natural  treasures  of  the 
earth.  Man  does  not  create  them  nor  five  direction  to  nature 

O 

in  their  formation.  It  has  seemed  to  some  nations  unfair 
that  these  natural  treasures  should  become  the  property  of 
individuals,  and  they  have  treated  them  as  a  common  heritage, 
exacting  a  rent  or  royalty  for  the  opportunity  to  appropriate 
them.  This  is  perhaps  generally  the  case  on  the  Continent  of 
Europe,  but  English  law,  with  its  inclination  to  the  exaggera- 
tion of  private  rights,  established  the  principle  that  he  who 
owns  the  surface  owns  to  the  center  of  the  earth,  and  upward, 
to  the  sky.  It  is  a  peculiarity  of  land  that  its  quantity  caii- 
not  be  increased  appreciably,  and  thus  it  is  spoken  of  as  a 
natural  monopoly.  Tins  seems  hardly  accurate.  It  is  a  lim- 
ited factor,  but  in  the  owncr>hip  or  management  of  land 
there  is  no  inevitable  tendency  to  monopoly. 

2.  Labor. — Labor  is  the  second  of  the  two  primary  things 
in  production.  It  is  service;  supplied  bv  human  beings,  and 
is  different  from  other  goods  because  it  is  always  connected 
with  a  personality. 

Moral  and  intellectual  qualities  increase  its  productive- 
ness. Temperance,  trustworthiness,  skill,  alertness,  quick 


162          -l-V  INTRODUCTION  TO  POLITICAL  ECONOMY. 

perception,  a  comprehensive  mental  grasp,  all  these  and  other 
good  qualities  belonging  to  the  soul  of  man  are  of  chief 
importance  in  man.  Man's  mere  physical  strength  in  itself 
is  a  poor  thing,  being  surpassed  by  that  of  lower  animals,  as 
oxen  and  horses ;  but  man  is  far  more  productive,  and  even 
as  a  slave  sold  for  far  more  than  the  lower  animals.  The 
economic  value  of  intellectual  training  is  generally  not  suffi- 
ciently appreciated.  It  has  been  ascertained  that,  with  no 
noteworthy  exceptions  the  higher  in  any  part  of  the  United 
States  the  per  capita  expenditure  for  schools  the  higher  i.s 
the  average  of  wages,  and  the  larger,  consequently,  the  pro- 
duction of  wealth. 

Growth  of  Population. — The  supply  of  labor  is  in- 
creased with  the  growth  of  population,  and  to  this  there  i;. 
no  limit  save  the  means  of  subsistence.  Fear  has  been  ex- 
pressed that  the  growth  of  population  may  outrun  the* 
means  of  subsistence.  A  theory  of  population  has  been  ad- 
vanced by  the  English  economist,  Malthus,  which  is  called 
Malthusianism.  It  is  simply  this:  population  tends  to  in- 
crease as  2,  4,  8,  16,  3J,  etc.,  or  in  geometrical  progression, 
while  the  best  we  can  hope  is  that  food  supply  will  increase 
as  2,  4,  C,  8,  10,  etc.,  or  in  arithmetical  progression  ;  con- 
sequently if  there  were  no  check  to  the  natural  increase 
of  population  men  would  in  a  short  time  starve  to  death. 
But  there  are  checks  to  the  growth  of  population,  and  these 
are  of  two  kinds;  namely,  positive  and  preventive.  Positive 
checks  are  those  which  keep  down  population  by  killing  off 
people,  like  plagues,  pestilence,  intemperance,  vice,  crime, 
war.  Preventive  checks  are  those  which  keep  down  popula- 
tion by  preventing  the  birth  of  an  undue  number  of  people, 
as  prudence  in  contracting  marriage  or  abstinence  from  mar- 
riage. These  are  checks  of  a  moral  character.  Men  who 
are  conscientious  will  not  marry  until  they  feel  that  they 
will  probably  be  able  to  support  a  wife  and  bring  up 
children  worthily.  As  population  becomes  denser  this 
postpones  marriage,  and  as  the  age  of  marriage  increases 
the  average  number  of  births  will  decrease.  Innumerable 


THE  FACTORS  OF  PRODUCTION.  163 

customs  exist  all  over  the  world,  especially  in  older  countries, 
postponing  the  age  of  marriage,  and  these  tend  to  prevent 
an  undue  growth  of  population.  The  only  practical  con- 
clusion which  Malthus  drew  from  his  doctrine  was  this  :  let 
no  one  marry  until  he  has  a  reasonable  prospect  that  he  will 
be  able  to  support  and  bring  up  a  family  of  the  average 
size.  He  wished  to  intensify  the  feeling  of  parental  respon- 
sibility. 

At  the  present  time  nothing  more  in  the  way  of  restraint 
to  population  seems  necessary  in  the  United  States  than  to 
keep  from  our  shores  the  lowest  classes  of  foreigners  and  to 
exercise  in  contracting  marriage  that  prudence  which  has 
loiif;  characterized  the  reallv  best  classes  of  American  society. 

•  « 

Nevertheless,  it  must  be  admitted  that  by  no  human  possi- 
bility can  population  long  continue  to  increase  in  the  United 
States  as  it  has  done  in  the  past,  for  in  a  comparatively  short 
period  there  would  not  be  standing-room  on  the  surface  of 
the  earth  for  all  the  people.  It  is  said  that  our  population  is 
now  doubling  in  less  than  twenty-five  years.  If  it  continues 
to  increase  at  this  rate  we  have  a  geometrical  progession.  Let 
us  suppose  it  is  now  sixty  millions  and  that  it  doubles  once 
in  twenty  five  years.  Two  hundred  and  fifty  years  is  a  short 
period  in  the  world's  history,  but  our  population  at  the  expi- 
ration of  that  period  would  exceed  sixty  thousand  millions  of 
people,  which  is  i'orty  times  the  estimated  population  of  the 
globe  at  present. 

IIo\v  terrible  a  thing  a  geometrical  progression  is  has  been 
shown  more  clearly  still.  Let,  us  suppose  that  there  are  only 
two  people  on  the  face  of  the  earth,  and  that  population 
doubles  only  once  in  fifty  years.  At  the  expiration  of  three 
thousand  years  the  whole  surface  of  the  earth,  land  and  sea, 
would  be  covered  with  people  piled  one  on  top  of  the  other 
eight  hundred  deep.* 

Manifestly  the  present  rapid  rate  of  increase  of  population 
cannot  continue  forever  ;  yet  it  does  not  cause  great  uneasi- 
ness. It  has  been  urged  by  some  writers  that  as  man  de- 
*  Marshall's  Ewtonfoe  Of  Indmtory,  chapter  v. 


164  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

velops  more  highly  his  fecundity  will  decrease  and  the  growth 
of  population  will  become  slower.  Others  think  that  pru- 
dential and  moral  restraints  will  be  ample  to  prevent  an 
undue  increase  of  population. 

The  chief  cause  for  anxiety  is  this  :  For  some  reason  or 
another  it  seems  to  be  more  difficult  for  a  large  population 
to  live  peaceably  together  under  present  industrial  conditions 
than  for  a  small  one,  and  there  is  ground  for  the  anticipation 
that  the  growth  of  population  will  test  the  worthiness  of  our 
civilization  to  endure,  as  other  causes  have  tested  older  civili- 
zations. We  may  be  sure  that  if  there  is  a  moral  governor 
of  the  universe  modern  nations,  like  ancient  nations,  will  be 
called  upon  to  show  their  fitness  to  survive.  Every  time  the 
sun  rises  it  looks  upon  a  larger  population  than  ever  before 
in  the  United  States,  and  consequently  upon  a  more  complex 
industrial  civilization.  A  force  mighty,  and  it  almost  seems 
irresistible,  is  at  work,  day  and  night,  day  and  night,  never 
ceasing,  forcing  upon  us  more  :ind  more  serious  social  prob- 
lems. These  'problems  can  never  be  solved  by  the  police- 
man's club  or  the  soldier's  bullet,  for  this  quiet  on-moving 
force  laughs  such  repression  to  scorn.  Only  righteousness 
can  solve  them,  for  only  in  righteousness  is  there  power  to 
enable  us  to  adjust  ourselves  to  our  new  environment. 

3.  Capital. — Capital  is  the  third  factor  in  production. 
It  is  not  one  of  the  two  first  tilings  in  political  economy,  but 
it  is  a  combination  of  these  two.  Land  and  labor  together 
produce  capital,  just  as  oxygen  and  hydrogen  combine  and 
produce  \\atcr.  Capital  is  neither  land  nor  labor,  but,  re- 
sulting from  the  two,  it  is  a  new  thing  and  has  properties  of 
its  own.  Cftpital  /.•?  crcrt/  product  /<rid  b>/  irfticl)  rnai/  be 
used  fur  purposes  of  further  production.  There  are  two  ele- 
ments in  this  conception  :  first,  that  of  stored-up  goods,  and 
second,  that  of  apossibilitv  of  use  in  the  future. 

It  is  often  sa'nl  that  capital  is  the  result  of  saving,  but  this 
is  misleading.  Saving  is  merely  a  negative  act  and  cannot 
produce  any  positive  result.  We  must  have  something  to 
save,  that  is,  we  must  first  produce,  and  then  over  and  above 


THE  FACTORS  OF  PRODUCTION.  165 

the  necessities  of  life  there  must  be  a  surplus  ;  if  this  is  laid 
by  or  saved  it  becomes  capital. 

The  aid  which  capital  renders  to  production  is  essential  to 
any  production  of  economic  goods  save  tho  most  primitive 
and  limited.  Capital  means  food,  shelter,  houses,  buildings, 
tools,  machinery,  steamships,  railroads,  telegraphs,,  telephones, 
manufacturing  and  commercial  establishments.  Of  those 
things  which  man  needs  to  sustain  life  it  means  a  surplus, 
and  this  renders  possible  an  effective  combination  and  or- 
ganization of  the  productive  factors.  Nothing  is  more  dis- 
astrous than  to  be  obliged  to  work  to-day  for  the  food  of 
to-day.  When  this  is  necessary  no  systematic  activity  is 
possible,  but  we  must  seize  the  first  opportunity  which  offers 
to  get  food,  however  miserable.  Capital  accumulated  means 
that  we  can  postpone  consumption,  working  to-day  for  the 
food  supply  of  some  future  day.  We  can  thus  organize 
productive  forces,  we  can  survey  the  field  of  industry  and 
secure  the  best  place  to  apply  these  forces.  We  can  put  in 
our  seed-corn  and  wait  until  it  produces  sixty  or  a  hundred 
fold  instead  of  wandering  through  the  woods  for  uncertain 
game,  which  when  taken  is  slaughtered,  and  losing  its  power 
of  increase  renders  it  no  whit  easier  to  produce  to-morrow's 
supplies.  As  capital  is  a  productive  factor  it  claims  a  part 
of  the  product,  and  this  part  is  culled  interest.  Often  we 
speak  of  profits,  but  when  profits  include  more  than  interest 
they  embrace  something  else  besides  the  simple  return  on 
capital. 

Social  and  Individual  Capital. — We  must  always  dis- 
tinguish between  what  is  capital  to  the  individual  and  what 
is  capital  to  society;  that  is,  between  social  and  individual 
capital.  Only  socio-economic  goods,  or  material  goods  and 
accumulated  personal  products  of  past  toil,  can  be  regarded 
as  social  capital.  Bonds,  mortgages,  and  all  evidences  of  in- 
debtedness, are  no  part  of  social  capital,  but  they  are  indi- 
vidual capital.  Franchises  are  no  part  of  social  capital  ; 
they  are  simply  permission  to  make  use  of  existing  social 
capital,  or  to  create  social  c:ipitil.  The  capital  of  society  is 


166  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

not  diminished  when  the  value  of  corporate  property,  like 
railroads,  telegraphs,  telephones,  and  the  like,  is  reduced  to 
a  fair  valuation  for  the  actual  social  capital  invested.  It 
may  or  may  not  be  morally  right,  it  may  or  may  not  be  le- 
gally possible,  to  equalize  in  a  concrete  case  social  and  indi- 
vidual capital  ;  only  the  particular  circumstances  surround- 
ing that  case  can  determine.  It  is  now  simply  desired  to 
bring  out  clearly  the  distinction. 

Fixed  and  Circulating  Capital. — A  common  division 
of  capital  is  into  fixed  and  circulating.  Circulating  capital 
is  capital  which  can  be  used  only  once,  or  in  one  round  of 
operations.  Its  entire  value  p-isses  over  into  the  product. 
Fixed  capital,  on  the  other  hand,  is  capital  which  lasts  for  a 
succession  of  operations,  and  only  a  part  of  the  value  of 
which  passes  over  into  the  product  with  each  use.  Coal  used 
in  a  furnace  is  an  example  of  circulating  capital  ;  the  coal- 
cart  in  which  the  coal  is  hauled  is  fixed  capital. 

Capital  Saved  by  being  Consumed. — Capital,  although 
saved  products,  is  consumed.  When  food  is  used  for  product- 
ive purposes  it  is  consumed  as  truly  as  when  used  for  present 
enjoyment.  Let,  us  suppose  I  can  raise  a  certain  amount  of 
produce  on  my  farm.  I  raise  necessaries  and  also  delicacies, 
and  consume  all  I  raise.  Let  us  suppose  now  I  raise  only  nec- 
essaries, and  since  I  raise  twice  as  much  fooil  as  I  can  use  I  give 
half  of  my  produce  to  a  man  who  constructs  a  barn  for  me.  I 
have  accumulated  capital,  but  the  consumption  of  food  has  not 
been  diminished  thereby.  Obvious  as  this  is,  it  is  not  un- 
derstood so  generally  as  it  should  be.  There  is  a  wide-spread 
impression  that  it  is  better  for  a  man  to  spend  his  substance 
in  riotous  living  than  to  save  it;  but  the  man  who  builds 
hoases  makes  as  large  purchases  as  he  who  expends  the 
same  sum  in  feasts,  and  society  is  richer  because  of  the  latter 
consumption  ;  the  houses  still  remain. 

Increase  of  Capital.— Capital  is  a  growth,  and,  as  a  re- 
turn is  exacted  for  capital,  capital  begets  capital,  as  it  were. 
This  makes  it  infinitely  easier  for  a  man  who  has  capital  to 
accumulate  it  than  for  a  man  who  has  no  capital.  So  inti- 


THE  FACTORS  OF  PRODUCTION.  167 

mately  is  present  capital  connected  with  past  capital  that  it 
has  l>een  said  that  there  is  not  a  nail  in  all  England  which 
could  not  be  traced  back  over  eight  hundred  years  to  savings 
made  before  the  Norman  Conquest. 


On  Population  rend  chapter  x  of  Book  I  of  Mill's  Political 
Economy,  and  chapter  v  of  Book  I  of  Marshall's  Economics 
of  Industry.  Chapter  xii  of  Part  VI  of  Herbert  Spencer's 
l*rinciples  of  Bioloyy  may  be  consulted  with  advantage.  On 
wasteful  expenditure  and  saving  see  Ely's  Problems  of  To- 
day, chapter  xv. 
8 


CHAPTER  IV. 

ORGANIZATION  OF  THK  PRODUCTIVE  FACTORS. 

Early  Simplicity. — The  organization  of  the  factors  of 
production,  simple  at  first,  becomes  on  the  whole  continually 
more  complex  with  the  development  of  industrial  civilization. 
Differentiation  accompanies  development.  The  old  house- 
hold economy  is  organized  in  such  a  manner  that  the  exist- 
ence of  three  separate  factors  in  production  is  scarcely  per- 
ceived. The  same  man  is  owner  of  land,  labor,  and  capital, 
and  all  the  products  flowing  into  his  hand  are  distributed  by 
him  among  those  who  participate  in  production  according  to 
the  manner  which  he  deems  proper.  When  production  is 
carried  on  by  a  village  community  we  have  collective  own- 
ership of  the  instruments,  management  by  a  common  author- 
ity, and  a  division  of  products  according  to  regulations  based 
on  custom.  The  products  arc  not  divided  into  parts  corre- 
sponding to  the  factors  of  production,  but  the  same  man 
receives  in  every  case  wages,  interest,  rent,  and  profits.  It 
is,  in  fact,  only  recently,  with  a  new  organization  of  indus- 
try separating  these  factors  and  assigning  them  to  different 
industrial  classes,  that  the  factors  of  production  have  become 
commonly  recognized  as  distinct  either  in  production  or  in 
the  distribution  of  products.  Even  to-day  this  separation  is 
in  a  large  portion  of  the  industrial  field  not  effected,  and,  con- 
sequently, there  is  not  there  that  antagonism  between  classes 
elsewhere  observed.  The  American  farmer  in  our  Northern 
States  is  usually  land-owner,  capitalist,  laborer,  and  manager, 
and  receives  rent,  interest,  wages,  and  profits,  and  in  the 
total  product  cannot  distinguish  one  from  the  other. 

The  Guilds. — The  old  guild  organization  of  industry 
and  commerce  united  the  factors  of  production  in  the  same 


ORGAXJZA  TIOX  OF  THE  PROD VCTIVE  FA  CTORS      189 

man.  The  guild  of  the  Middle  Ages  embraced  apprentice, 
journeyman,  and  master,  and  regulated  industry  and  com- 
merce under  governmental  supervision.  The  master  man- 
aged the  business,  owned  the  capital,  and  worked  with  his 
own  hands.  He  received  the  entire  product  of  the  business 
after  supporting  the  apprentices  and  paying  his  journeymen. 
Apprentices  and  journeymen  were,  it  is  true,  laborers,  and 
conflicts  about  wages  arose  not  infrequently,  although  for  long 
periods  harmony  prevailed,  particularly  during  the  best  days 
of  the  guilds.  There  was  a  partial  separation  of  labor  from 
other  factors,  it  is  true,  but  not  complete,  and  the  man  who 
supplied  labor  looked  forward  not  without  reason  to  the  time 
when  he  should  become  capitalist,  employer,  and  manager. 
This  advance  was  a  regular  part  of  the  guild  system. 

Growth  of  Complexity.  —  The  present  century  has 
witnessed  a  great  change  in  the  organization  of  the  produc- 
tive factors,  especially  in  commerce,  manufactures,  and  trans- 
portation. We  have  a  large  class  that  furnishes  labor  only, 
another  class  that  furnishes  land  and  capital,  and  a  third 
class  that  organizes  and  manages  the  undertaking.  A  mod- 
ern railway  corporation  serves  as  a  good  illustration.  The 
Htock  and  bondholders  furnish  capital  on  which  they  receive 
interest;  the  stockholders  carry  on  the  business  through 
managers,  and  for  this  service  they  hope  to  receive  a  sur- 
plus above  interest,  called  profits;  labor  is  remunerated  by 
wages  and  by  salaries,  wages  being  the  remuneration  of 
subordinates  and  salaries  of  officials.  Land  is  supplied  by 
stock  and  bond  holders,  a  part  of  their  capital  being  ex- 
changed for  land,  and  consequently  we  have  rent  also,  al- 
though not  usually  appearing  as  a  separate  factor.  Yet  land 
may  appear  as  a  separate  factor  when  land  is  leased.  No 
doubt  railways  in  Baltimore  and  Philadelphia  pay  ground 
rents,  annual  returns  for  land  itself,  to  those  who  do  not 
own  the  improvements.  We  observe  then  all  these  various 
classes,  and  perceive  that  the  product  or  revenues  of  the  un- 
dertaking are  divided  into  a  corresponding  number  of  por- 
tions. It  can  readily  be  understood  how  controversy  re- 


176  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

specting  portions  allotted  to  the  different  classes  can  arise. 
It  is  said  that  the  business  community  is  always  in  debt,  be- 
cause it  ca  pies  on  business  with  more  or  less  borrowed 
money.  The  owner  of  the  business  enterprise  is  an  organ- 
izer and  manager,  and  receives  wages  of  superintendence,  a 
salary  which  he  pays  himself;  he  receives  a  return  for  risk, 
he  pays  interest  and  receives  interest  on  any  money  he  has 
invested,  he  pays  wages  and  rent. 

The  Entrepreneur. — The  one  who  manages  business  for 
himself  was  formerly  called  an  undertaker  or  an  adventurer, 
but  the  first  word  has  been  appropriated  by  one  small  class 
of' business  men  and  the  latter  has  acquired  a  new  meaning, 
carrying  with  it,  the  implication  of  rashness  and  even  of  dis- 
honesty. We  have  consequently  been  obliged  to  resort  to 
the  French  language  for  a  word  to  designate  the  person  who 
organizes  and  directs  the  productive  factors,  and  we  call  such 
a  one  an  entrepreneur. 

The  function  of  the  entrepreneur  has  become  one  of  the 
most  important  in  modern  economic  society.  lie  has  been 
well  called  a  captain  of  industry,  for  he  commands  the  indus- 
trial forces,  and  upon  him  more  than  anyone  else  rests  the  re- 
sponsibility for  success  or  failure.  A  business  which  has 
achieved  magnificent  success  often  becomes  bankrupt  when, 
owing  to  death  or  other  cause,  an  unfortunate  change  in  the 
entrepreneur  is  made.  The  prosperity  of  an  entire  town  has 
sometimes  been  observed  to  depend  upon  half  a  dozen 
shrewd  captains  of  industry.  It  may  be  said,  then,  that  the 
large  reward  these  often  receive  is  only  a  legitimate  return 
for  splendid  social  services.  Such  is  the  case,  provided  this 
reward  is  gained  honestly  and  without  oppression.  Some- 
times gains  are  partially  legitimate  and  partially  illegitimate. 
It  is  this  mixture,  observed  by  all  in  notorious  cases,  which 
has  probably  more  than  any  thing  else  led  to  indiscriminate 
attacks  on  the  profits  of  the  captains  of  industry.  It  must 
be  added  that  the  fact  that  a  man  has  gained  legitimately 
as  a  return  for  services  an  enormous  fortune  does  not  mor- 
ally entitle  him  to  use  it  as  he  pleases,  for  morally  a  man 


ORGANIZATION'  OF  THE  PRODUCTIVE  FACTORS.      Ill 

is  obliged  to  use  every  thing  lie  has,  himself  included,  for  the 
benefit  of  humanity,  and  if  he  has  great  powers  to  gain 
wealth  this  but  measures  the  extent  of  the  moral  though  not 
of  the  legal  obligation  to  society. 

The  productivity  of  industry  depends  largely  upon  the 
harmonious  development  of  all  the  factors.  Sometimes  labor 
is  specially  needed,  sometimes  capital,  sometimes  land;  most 
frequently  what  is  needed  al>ove  every  thing  else  is  a  better 
organization  of  productive  factors.  Organization  is  defect- 
ive, and  talent  for  organization  and  management  is  unfortu- 
nately rare. 

The  Division  of  Products. — The  more  efficient  all  the 
factors  the  greater  the  product  to  divide;  but  the  share  of 
each  factor  will  depend  upon  the  industrial  strength  of  the 
class  which  supplies  it  as  compared  with  the  industrial 
strength  of  other  classes.  One  great  element  in  strength  is 
what  we  may  call  "  staying-power."  The  one  who  can  wait 
while  the  necessities  of  the  other  press  him  makes  the  best 
terms  in  the  division.  It  is  on  this  account  that  labor  organ- 
izations spring  up.  Capital  is  necessarily  united  under  one 
management,  and  labor  seeks  to  put  itself  under  one  manage- 
ment that  it  may  gain  like  staying-power.  An  important 
element  in  determining  staying-power,  and  thus  industrial 
strength,  is  the  relative  rate  of  increase  of  the  factors.  If 
labor  supply  is  increasing  with  relatively  greater  rapidity 
than  capital  it  will  be  obliged  to  seek  capital,  and  it  cannot 
wait  to  be  sought.  Labor  organization  cannot  in  itself  cor- 
rect this  difficulty,  because  it  does  not  directly  increase  capi- 
tal supply.  Capital  organization  enables  capital  to  exploit 
fully  this  unfortunate'  position  of  labor.  If  capital  supply  is 
abundant  and  labor  scarce,  capital  must  seek  labor,  and  or- 
ganization here  again  enables  a  factor  to  gain  the  full  advan- 
tages of  a  favorable  situation.  If  land  supplv  does  not  keep 
pace  with  the  growth  of  other  factors,  it  can  force  them  to 
give  a  large  share  of  the  product  for  rent.  Better  means  of 
communication  and  transportation  have  recently  enormously 
increased  the  available  supply  of  agricultural  land,  and 


172  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

agricultural  rents  have  fallen.  The  supply  of  city  land  has 
not  increased  equally  with  demand,  and  urban  rents  have 
increased  enormously  all  over  the  world,  owners  of  building 
sites  favorably  shunted  in  large  cities  often  obtaining  a  large 
proportion  of  the  entire  product  of  the  business  carried  on  in 
buildings  erected  on  their  sites. 

Division  of  Labor.  —  A  characteristic  feature  of  the 
organization  of  the  factors  in  the  present  stage  of  industrial 
enterprises  is  what  is  commonly  called  a  division  of  labor, 
but  which  might  with  equ  d  propriety  be  called  a  co- 
operation of  labor.  Productive  processes,  especially  in 
manufactures,  are  divided  into  minute  parts,  and  one  part, 
or  perhaps  two  or  three  very  small  parts,  given  to  each  la- 
borer. One  man  makes  one  little  part  of  a  watch,  another 
a  second,  and  there  are  so  many  little  parts  that  it  is  said 
that  it  requires  the  co-operation  at  least  of  three  hundred 
persons  to  organize  properly  a  watch-making  establishment. 
There  are  sixty  or  seventy  distinct  branches  in  the  manufact- 
ure of  a  piano,  and  as  many  in  the  manufacture  of  a  boot. 
But  the  word  co-operation  used  shows  that  the  men  are 
working  together.  The  parts  divided  must  be  united  to 
form  one  whole.  When  the  phrase  division  of  labor  is  used 
we  look  at  one  side  of  the  process;  when  the  word  co- 
operation, at  another.  Division  of  labor,  machinery,  and 
the  use  of  natural  powers,  like  water,  steam,  and  electricity, 
are  the  chief  part  of  the  explanation  of  the  marvelous  in- 
crease in  the  productivity  of  the  productive  factors;  one  man 
performing  the  labor  now  which  formerly  required  the  labor 
of  ten,  one  hundred,  or  even  a  thousand  men. 

Advantages  of  Division  of  Labor. — The  advantages 
of  a  division  of  labor  have  been  enumerated  as  follows  : 
First,  :\  gain  of  time.  A  change  of  operations  costs  time. 
Less  time  also  is  consumed  in  learning  one's  business,  as  tin- 
labor  of  each  is  morn  simple.  Second,  greater  skill  is  ac- 
quired because  each  person  confines  himself  to  one  operation 
and  in  that  becomes  remarkably  proficient.  Third,  labor  is 
used  more  advantageously.  Some  parts  of  an  industrial 


ORGANIZA  770.V  OF  THE  PRODUCTIVE  FACTORS.      173 

process  can  be  performed  by  a  weak  person,  others  require 
unusual  physical  strength  ;  some  require  extraordinary  intel- 
ligence, some  can  be  performed  by  a  man  of  very  ordinary 
intellectual  powers,  and  so  on,  indefinitely.  Each  one  is  so 
employed  that  his  entire  power  is  utilized,  and  work  is  found 
for  all,  young  and  old,  weak  and  strong,  stupid  and  intellect- 
ually gifted.  Fourth,  inventions  are  more  frequent,  because 
the  industrial  processes  are  so  divided  that  it  is  easy  to  see 
just  where  an  improvement  is  possible.  Besides  this,  when 
a  person  is  exclusively  engaged  in  one  simple  operation,  he 
often  reflects  on  this,  understands  it  thoroughly,  and  seas 
how  the  appliances  he  uses  could  be  improved.  Laborers 
have  made  many  important  inventions.  Fifth,  capital  is 
better  utilized.  Each  laborer  uses  one  set  of  tools  or  one 
part  of  a  set,  and  keeps  that  employed  all  the  time.  When 
each  laborer  does  many  things  he  has  many  tools,  and  some 
are  always  idle. 

Disadvantages. — The  disadvantages  of  a  division  of  la- 
bor should  be  noticed.  It  makes  it  possible  to  employ  women 
and  children,  and  the  proportion  of  men  employed  decreases. 
Child  labor  and  labor  of  women  often  displace  men,  and  m 
American  cities  one  sometimes  iinds  fathers  at  home  keeping 
house  while  children  and  wives  are  at  work  in  factories. 
The  home  is  thus  demoralized,  and  the  rising  generation  be- 
comes weak  in  body  mid  mind  and  depraved  in  character. 

The  dependence  of  man  upon  man  is  increased  in  the  man- 
ner previously  described,  and  this  is  frequently,  at  least,  par- 
tially an  evil.  An  international  dependence  arises  which 
occasionally  produces  intense  suffering.  The  so-called  "cot- 
ton-famine" in  the  north  of  England  during  the  American 
civil  war  illustrates  this.  America  grew  cotton,  England 
manufactured  it,  and  this  seemed  to  work  well  until  it  be- 
came impossible  for  England  to  secure  the  cotton  supply 
from  our  South,  and  the  result  was  intense  suffering  of  hun- 
dreds of  thousands  of  working  people  in  no  wise  responsible 
for  the  distant  war. 

Laborers    are    often    rendered   helpless  on   occasion  of  a 


774  ^V  INTRODUCTION  TO  POLITICAL  ECONOMY. 

change  of  production,  having  learned  to  do  only  one  thing, 
which  is  now  no  longer  required,  and  having  become  too  old 
to  acquire  a  new  skill.  Dickens  describes  evils  of  this  kind 
in  his  Hard  7\mes. 

When  labor  is  rendered  simple  it  loses  both  its  attractiveness 
and  its  educational  value  at  the  same  time.  One  can  lo\e 
his  work  when  one  manufactures  a  whole  watch,  bearing  the 
impress  of  care  and  skill;  but  who  can  love  the  mere  routine 
of  raising  a  sledge-hammer  and  letting  it  fall  for  ten  hours  a 
day  ?  M.  de  Tocqueville,  in  his  Democracy  in  America, 
attributes  the  high  average  intelligence  of  Americans  to  the 
fact  that  labor,  when  he  wrote,  was  not  so  divided  with  us 
as  elsewhere. 

Remedies  for  the  Evils  of  Minute  Division  of 
Labor. — Education,  particularly  industrial  training  and  pop- 
ular work  like  that  in  which  Ohautauqua  is  engaged,  labor 
organizations  with  their  debates  and  discussions,  political 
life  with  universal  suffrage,  and  increased  leisure,  are  all 
means  whereby  the  evils  of  division  of  labor  may  be  obviated. 
When  labor  becomes  soulless,  ceasing  to  minister  to  fullness 
of  life,  increased  opportnnities  for  development  outside  of 
the  industrial  field  must  be  offered.  Hours  of  labor  must 
be  shortened,  but  not  necessarily  equally.  A  clergyman  or 
professor  finds  opportunities  for  the  harmonious  development 
of  all  his  faculties  in  his  occupation, and  the  reasons  for  a  short 
labor  day  for  factory  operatives  do  not  exist  in  his  case. 

Increased  Productivity. — The  tremendous  increase  of 
productive  power,  due  to  division  of  labor,  has  often  been 
estimated  more  or  less  accurately.  It  has  been  said,  for 
example,  that  modern  inventions  and  discoveries  in  the 
great  civilized  nations  have  a  productive  power  forench  fam- 
ily of  five  persons  equivalent  to  the  labor  of  sixty  slaves  in 
classical  Athens.  Now,  the  civilization  of  Athens  was 
based  on  slavery,  and  it  is  estimated  that  there  were  twelve 
slaves  to  a  free  Athenian  familv.  Natural  forces  do  for  us 
five  times  as  much  as  slavery  did  for  Athens. 


PART  III. 

TRANSFERS  OF  GOODS. 


CHAPTER  I. 

INTRODUCTORY. 

TRANSFERS  of  goods  are  of  two  kinds  :  one-sided  trans- 
fers and  two-sided  transfers  of  goods.  Transfers  of  goods 
constitute  a  large  part  of  our  economic  life.  The  business 
of  one  important  industrial  class,  called  merchants,  consists 
in  effecting  transfers  of  goods.  The  operations  in  which 
merchants  are  engaged  we  call  commerce.  But  commerce 
requires  a  multitude  of  other  businesses  to  assist  it,  and 
among  them  are  especially  prominent  the  means  of  commu- 
nication and  transportation,  such  as  public  roads,  canals, 
railways,  telegraphs,  telephones,  and  banks.  These  agents  of 
commerce  do  not  confine  their  functions  to  the  assistance  of 
merchants,  but  they  aid  the  entire  community  in  bringing 
about  desired  transfers  of  goods. 

Exchange. — The  part  of  political  economy  dealing  with 
transfers  is  usually  called  exchange,  because  transfers  are 
mostly  two-sided,  and  it  is  with  these  two-sided  transfers 
that  we  are  especially,  though  not  exclusively,  concerned  in 
the  chapters  which  in  the  present  work  are  placed  under  the 
title,  "  Transfers  of  Goods."  Taxes,  the  chief  kind  of  one- 
sided transfers,  are  more  conveniently  treated  under  finance, 
while  bequest  and  inheritance  may  be  better  discussed  under 
distribution,  which  is  so  powerfully  affected  thereby.  Money 
and  banks,  however,  which  are  treated  in  the  present  part  of 
this  book,  are  agencies  for  assisting  in  one-sided  transfer* 
as  well  as  two  sided  transfers  of  goods. 

Value. — Certain  conceptions  which  quickly  arise  in  ex- 
changes must  now  be  defined.  The  first  is  value.  What  do 
we  mean  by  value?  Value  is  a  quantity  of  utility.  Utility 
means  capacity  to  satisfy  human  wants,  and  when  \re  measure 


178  AN  INTRODUCTION  TO  POLITICA  L  ECONOMY. 

this  and  make  comparison  between  the  quantity  of  utility 
pertaining  to  one  good  and  the  quantity  of  utility  pertaining 
to  another  good  we  form  the  conception  which  we  call  value. 
When  we  say  that  this  horse  is  twice  as  valuable  as  this 
cow  we  mean  simply  that  it  is  twice  as  useful. 

Utility  and  Value. — A  distinction  is  often  made  be- 
tween utility  and  value,  which  is  based  on  a  logical  fallacy. 
We  say  water  is  useful  but  it  has  no  value.  When,  how- 
ever, we  say  water  is  useful  we  refer  to  water  in  general, 
but  when  we  say  water  has  no  value  we  refer  to  a  concrete 
quantity  of  water,  as  a  pint  of  water  in  a  pitcher.  Now,  a 
particular  concrete  quantity  of  water  has  no  value,  but  it 
also  contains  no  such  quantity  of  utility  that  we  are  willing 
to  give  things  in  exchange  for  it  which  have  cost  an  appre- 
ciable amount  of  labor  or  sacrifice.  If  we  lose  one  glassful 
of  water  we  readily  obtain  another,  and  the  exertion  of  get- 
ting another  glass  is  less  than  the  exertion  of  paying  even 
the  smallest  sum,  one  cent,  for  the  glass.  The  utility  is  less 
than  a  cent.  It  has  no  value  because  the  amount  of  utility 
is  not  great  enough  to  be  measured.  If,  however,  a  partic- 
ular concrete  quantity  of  water,  as  a  gallon  of  water,  brought 
into  an  Oriental  city  by  a  water-carrier,  has  an  appropriable 
quantity  of  utility,  then  it  has  also  value.  Something  can  be 
procured  in  exchange  for  it. 

Air,  water,  sunshine  are  useful,  but  as  a  whole  they  are 
not  appropriable  and  not  exchangeable,  and  consequently  we 
cannot  say  that  as  a  rule  they  have  value  in  themselves. 

Value  in  Use  and  Value  in  Exchange. — A  distinction 
is  also  made  between  value  in  use  and  value  in  exchange, 
which  does  not  seem  to  be  well  drawn.  Value  in  use  appears 
to  be  frequently  used  as  equivalent  to  utility,  but  sometimes 
it  is  equivalent  to  subjective  value  as  opposed  to  objective 
value,  that  is,  value  of  a  thing  to  its  owner  as  opposed  to  the 
market  value,  or  value  which  others  agree  to  place  upon  it. 

Elementary  Value,  Form  Value,  Place  Value,  Time 
Value. — Various  kinds  of  value  have  been  mentioned,  of 
of  which  the  following  are  specially  important  :  elementary 


1NTR  OD  UCTOR  Y.  1 79 

value,  form  value,  place  value,  time  value.  Elementary  value 
refers  to  value  of  raw  material.  It  is  with  the  production  of 
this  value  that  agriculture,  and  other  branches  of  extractive 
production,  like  mining,  are  concerned.  Form  value  is  due 
to  form  and  shape  given  to  raw  material.  Manufacturers 
produce  this  kind  of  value.  Time  value  and  place  value  are 
values  due  to  the  fact  that  goods  have  been  brought  to 
the  place  where  needed  or  saved  till  the  time  when  needed. 
The  merchant  produces  these  kinds  of  values.  He  adds 
properties  to  goods;  namely,  the  property  of  being  in  the 
right  place  and  of  being  there  at  the  right  time. 

Values  are  merely  relative,  and  consequently  there  can  be 
no  such  thing  as  a  general  rise  or  fall  of  values.  Let  us  sup- 
pose that  to-day  two  bushels  of  wheat  exchange  for  three  of 
oats,  and  to-morrow  for  four  bushels  of  oats.  We  may  say 
that  wheat  has  risen  in  value,  but  it  is  obvious  that  exactly 
in  the  same  proportion  oats  have  fallen  in  value. 

Price. — Value  expressed  in  money  is  called  price.  There 
can  be  such  a  thing  as  a  general  fall  or  a  general  rise  of  prices. 
A  general  fall  in  prices  means  an  increase  in  the  value  of  money, 
and  a  general  rise  in  prices  means  a  fall  in  the  value  of  money. 

Demand  and  Supply  are  expressions  constantly  used  in 
political  economy  as  also  in  practical  life.  It  is  said  that  de- 
mand and  supply  regulate  price,  but  clear  ideas  do  not  usually 
accompany  this  expression.  Supply  and  demand  are  constant- 
ly varying  quantities  of  things.  An  increased  demand  may 
lead  to  increased  supply,  but  an  increased  supply  not  infre- 
quently goes  ahead  of  actual  demand  and  increases  demand. 
The  supply  at  a  given  moment  may  be  a  fixed  quantity,  but 
what  is  the  demand  ?  It  is  stated  as  desire  accompanied  by 
purchasing  power.  But  this  fluctuates  continually.  At  one 
time  demand  may  fall  far  short  of  supply  ;  at  another  price 
it  may  far  exceed  supply  and  bring  about  an  increase  in  sup- 
ply. Demand  and  supply  tend  to  equality,  and  this  tendency1 
operates  through  price.  Prices  are  lowered  and  raised  in 
such  a  manner  that  a  rough  kind  of  equilibrium  between 
supply  and  demand  is  brought  about. 


180  -l-V  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Forces  which  influence  Demand  and  Supply. — But 
there  are  all  sorts  of  forces  at  work  back  of  demand  and 
supply,  making  these  what  they  are.  Any  one  who  stops 
at  demand  and  supply  in  his  economic  studies  has  failed  to 
go  below  surface  phenomena.  Laws  and  customs  all  affect 
demand  and  operate  on  supply.  Has  religion  any  thing  to  do 
with  demand  ?  Certainly.  Thanksgiving  day  increases  the 
demand  for  turkeys,  and  Easter  increases  the  demand  for 
eggs.  This  increased  demand  operates  in  two  ways.  First, 
it  raises  prices,  and  that  tends  to  check  the  demand  ;  it  is  a 
counteracting  tendency.  Second,  there  is  an  effort  to  bring 
to  the  market  an  increased  supply  to  satisfy  the  unusual  de- 
mand, and  occasionally  the  demand  at  existing  prices  is  ex- 
ceeded, when  equilibrium  is  restored  again  by  lower  prices, 
which  increase  demand.  Religious  holidays  affect  labor  sup- 
ply. These  holidays  were  so  numerous  in  Brazil  some  years 
since  that  the  national  economy  was  injuriously  affected,  and 
through  the  efforts  of  the  emperor  these  were  greatly  reduced. 
Labor  organizations  and  other  organizations  of  productive 
forces  try  to  regulate  supply  and  demand  in  a  manner  bene- 
ficial to  themselves,  and  this  is  often,  though  not  always,  in 
a  manner  beneficial  to  the  general  public.  To  withhold  sup- 
ply fora  time  from  those  demanding  it  tends  to  raise  prices, 
while  to  press  it  upon  them  leads  to  "  slaughter-prices."  What 
we  may  technically  call  an  "  urgency  "  of  supply  and  "  ur- 
gency" of  demand  are  then  important  elements  in  determining 
prices.  Fashion  suddenly  increases  and  as  suddenly  decreases 
demand,  and  by  its  rapid  changes  produces  loss.  Inheritance 
and  bequest  affect  demand  and  supply  through  their  action 
on  the  distribution  of  wealth,  and  this  is  the  case  with  all 
laws  of  property.  When  the  great  bulk  of  national  resources 
is  widely  distributed  so  that  many  have  a  competence,  but 
few  wealth,  the  demand  for  commodities  and  the  supply  of 
commodities  to  satisfy  this  demand  will  both  be  of  a  very 
different  character  from  demand  and  supply  in  a  time  in  which 
a  large  proportion  of  material  wealth  is  in  the  hands  of  a  few. 
In  the  former  rase  there  will  be  a  large  production  of  com- 


1XTR  OD  U  C  TOR  Y.  181 

forts  and  conveniences  with  resulting  general  well-being,  as 
in  the  best  days  of  the  Roman  Republic,  while  in  the  latter 
there  will  be  wanton  luxury  laboriously  supplied,  as  the  feasts 
of  the  emperors,  by  searching  sea  and  land  for  things  diffi- 
cult to  obtain.  This  wanton  luxury  in  Rome,  so  finely  sat- 
irized by  Juvenal,  will  be  accompanied  by  loose  morals, 
decay  of  civic  virtues,  general  rottenness,  while  the  magnifi- 
cence of  the  few  contrasts  vividly  with  the  beggarly  wretch- 
edness of  the  depraved  masses. 

Back  of  demand  and  supply  we  have  such  forces  as  these 
to  consider  :  disposable  surplus,  for  the  amount  I  will  give  for 
a  thing  I  want  depends  more  or  less  on  how  much  I  can  give ; 
thrift,  industry,  and  intelligence  increasing  demand,  but  at 
the  same  time,  by  application  and  by  improvement,  increasing 
supply  with  less  actual  outlay  of  economic  goods  for  the  at- 
tainment of  a  given  result. 

Cost  of  Production. — When  production  of  commodities 
can  be  indefinitely  increased,  as  is  the  case  with  cloth,  stoves, 
manufactured  articles  generally,  also  agricultural  produce, 
the  cost  of  production  is  the  factor  among  those  acting  on 
the  surface  of  industrial  society,  as  it  were — that  is  to  say, 
leaving  out  the  deeper  causes — which,  apart  from  temporary 
fluctuations,  regulates  price.  There  is  a  price  which  will 
recompense  the  various  productive  factors.  Production  is 
carried  on  so  long  as  that  price  for  commodities  can  be  ob- 
tained. If  demand  for  any  commodity  admits  at  any  time 
of  a  higher  price,  this  is  followed  by  increased  production, 
providing  always  that  the  movements  of  labor  and  capital  are 
free  with  respect  to  the  branch  of  production  concerned.  If 
price  falls  below  the  price  necessary  to  remunerate  the  fac- 
tors, production  will  fall  off,  providing  capital  can  be  with- 
drawn from  the  pursuit  'icitlioitt  large  proportional  /O.S-N. 
Leaving  out  of  view  deeper  causes,  we  may  say  price  depends 
immediately  on  demand  and  supply,  and  secondarily,  and  in 
the  long  run,  on  cost  of  production,  provided  we  have  free 
competition  ;  that  is  to  say,  provided  the  flow  of  labor  and 
capital  is  unobstructed. 


182  A^  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Freedom  of  Competition.— But  we  must  observe  this 
phenomenon:  that  precisely  at  the  present  time,  owing  to 
combinations  and  the  growing  importance  of  natural  monop- 
olies in  an  ever-increasing  proportion  of  the  industrial  tield, 
the  movements  of  labor  and  capital  are  not  free.  The  city 
of  Baltimore  pays  fifty  cents  a  night  for  each  electric  light 
burned  in  the  streets.  This  is  truly  exorbitant,  for  Chicago 
supplies  itself  with  electric  lights  for  fifteen  cents  a  night* 
each,  and  other  cities  for  still  less.  Suppose,  however,  I 
wish  to  furnish  the  city  with  lights  for  thirty-five  cents  each. 
The  opportunity  to  do  so  will  not  be  given  me,  because  those 
who  furnish  the  lights  have  a  de  facto  monopoly.  We  have 
then  monopoly  prices,  and  these  are  prices  which  do  not  de- 
pend on  cost  of  production,  but  which  are  fixed  at  the  most 
remunerative  point.  If  price  increases,  demand  falls;  if  price 
is  lowered,  demand  increases.  Intelligent  monopolists  will 
fix  prices  at  that  point  which  will  yield  largest  net  returns. 
A  great  fall  in  prices  of  service  rendered  by  monopolists,  like 
street-car  corporations,  will  often  be  followed  by  such  an 
increase  of  demand  for  services  that  net  returns  will  in- 
crease. This  brings  about  limited  but  insufficient  control 
of  monopolies. 

Social  and  Individual  Cost. — Cost  of  production  must 
be  viewed  in  two  aspects:  the  social  and  the  individual.  The 
cost  of  production  to  society  consists  in  efforts  and  sacrifices  ; 
to  the  individual,  in  what  is  paid  for  these  efforts  and  sacri- 
fices. What  is  the  cost  to  society  of  a  house  ?  It  is  the  days 
of  labor  and  the  materials  used,  with  wear  of  tools  and  im- 
plements, or  services  and  things  which  have  been  consumed. 
These  are  real  wealth,  and  society  has  lost  that  much  unless 
it  is  saved  in  the  house.  These  services  and  things  have  been 
diverted  from  other  possible  uses.  The  individual  cost  to 
me  is  what  I  pay  for  it,  say  five  thousand  dollars,  but  so- 
ciety is  neither  richer  nor  poorer  because  that  sum  of  money 

*This  figure  ia  taken  from  a  leading  newspaper  of  that  city.  It  has  by 
some  been  called  in  question.  Of  course  the  value  of  the  illustration  does 
not  depend  on  its  precise  accuracy. 


IX  TR  ODl'CTORY.  1  S3 

has  been  transferred  by  me  to  a  builder.  That  is  an  indi- 
vidual transaction.  Social  cost  is  what  Adam  Smith  calls 
the  "  real  cost  "  of  production. 

Fair  Price. — A  conception  of  fairness  is  powerful  in  its 
influence  upon  prices.  During  the  Middle  Ages  the  Church 
and  also  the  public  authorities  attempted  to  regulate  all 
prices  by  ideas  of  fairness.  Fair  price,  jitstum  pretiutn,  was 
perhaps  the  economic  topic  most  discussed  for  centuries,  and 
in  the  writings  of  the  most  renowned  of  the  philosophers  of 
the  Middle  Ages,  Thomas  Aquinas,  we  find  fair  price  treated 
with  great  learning  in  all  its  details.  Excommunication  was 
not  regarded  as  too  severe  a  penalty  for  violations  of  fair 
price.  To-day,  as  has  been  stated,  Irish  land  courts  fix  fail- 
rents.  To-day  city  authorities  and  State  authorities  fix  fair 
prices  for  many  services,  as  street-cars,  gas  supply,  even  cab 
service,  railway  transportation  of  goods  and  passengers. 
When  public  authorities  furnish  commodities  and  services 
they  try  to  fix  price  by  considerations  of  fairness.  Univer- 
sity trustees  try  to  pay  fair  salaries  to  college  professors, 
and  fees  charged  by  lawyers  and  professional  men  are  dis- 
cussed with  reference  to  fairness,  being  pronounced  by  pub- 
lic opinion  now  fair,  now  unfair. 


Read  the  author's  article  "Xatural  Monopolies  and  Local 
Taxation"  in  the  magazine  Lend  <i  Ifnn<1,  published  in  Bos- 
ton, March,  1880;  also  chapters  xvii-xxiii  in  his  foobJcinx  of 
T<>-d<nj.  One  of  the  best  discussions  in  the  English  language 
of  the  theory  of  value  and  of  the  law  of  demand  and  supply 
will  be  found  in  Professor  J.  B.  Clark's  Philosophy  of  Wealth, 
chapters  v  and  vi. 


CHAPTER  IT. 

MONEY. 

THERE  are  three  different  conceptions  of  money;  namely, 
the  popular,  the  legal,  and  the  politico-economic. 

The  Popular  Conception. — What  do  people  mean  in 
every-day  language  when  they  use  the  word  money  ?  Pres- 
ident Francis  A.  Walker  has  answered  this  question  in  the 
definition  of  money  found  in  his  excellent  little  work,  Money, 
Trade,  and  Industry.  It  is  as  follows:  "Money  is  that 
which  passes  freely  from  hand  to  hand  throughout  the  com- 
munity in  final  discharge  of  debts  and  full  payment  for  com- 
modities, being  accepted  equally  without  reference  to  the 
character  or  credit  of  the  person  who  offers  it,  and  without 
the  intention  of  the  person  who  receives  it  to  consume  it  or 
enjoy  it,  or  apply  it  to  any  other  use  than,  in  turn,  to  tender  it 
to  others  in  discharge  of  debts  or  full  payment  for  commodi- 
ties." This  is  what  men  ordinarily  mean  when  they  use  the 
word  money. 

The  Legal  Conception  is  different.  Whatever  the  law 
declares  a  legal  tender  is  money  in  the  legal  sense.  A  legal 
tender  is  that  which  the  law  compels  persons  to  receive  in 
payment  of  debt. 

The  Politico-Economic  Conception.  —  But  political 
economists  have  framed  still  a  third  definition  of  money, 
which  we  may  for  lack  of  a  better  term  call  the  politico-eco- 
nomic conception.  Money  in  the  politico-economic  conception 
must  perform  all  of  the  following  functions:  First,  it  must 
serve  directly  and  immediately  as  a  measure  of  value;  but 
value  measures  value  as  length  measures  length.  We  must 
take  as  a  unit  a  definite  concrete  value  like  our  gold  dollar, 
consisting  of  25'8  grains  of  gold,  nine  tenths  fine — that  is, 


MOXEY.  185 

nine  tenths  pure  gold  and  one  tenth  alloy.  When  we  say 
that  a  commodity  is  worth  nine  dollars  we  mean  that  its 
value  or  quantity  of  utility  is  nine  times  that  of  our  "unit  of 
value-measurement,"  consequently  money  in  this  sense 
must  be  composed  of  material  in  itself  valuable.  Second,  it 
must  serve  as  a  medium  of  exchange.  This  is  the  principal 
function  of  all  kinds  of  money.  Commodities  are  not  usually 
directly  exchanged  for  one  another,  but  indirectly  through 
the  medium  of  money.  The  farmer  selling  his  corn  for  mon- 
ey, and  with  this  money  buying  sugar,  really  exchanges  corn 
for  sugar,  the  money  serving  merely  as  a  convenient  medium. 
Third,  money  in  the  present  sense  must  serve  as  a  means  of 
making  payments,  and  this  is  facilitated  usually  by  having  a 
legal-tender  quality  attached  to  it.  Payments  are  often  one- 
sided transfers  of  goods,  and  on  that  account  the  third  func- 
tion differs  somewhat  from  the  second.  Fourth,  money  in 
the  politico-economic  sense  must  serve  as  a  store  or  recepta- 
cle of  value.  It  must  store  up  value  so  that  it  can  be  trans- 
ferred from  place  to  place  and  time  to  time.  Roman  gold 
money,  preserved  for  two  thousand  years,  has  brought  value 
down  to  our  own  time;  and  gold  money  taken  across  the 
Atlantic  bears  with  it  stored-up  value. 

These  distinctions  render  it  easy  to  answer  otherwise  per- 
plexing questions.  Are  national  bank-notes  money  ?  In  the 
popular  sense,  undoubtedly,  but  not  in  the  legal  sense  nor  in 
the  politico  economic  sense.  Are  national  treasury  notes 
money?  Yes,  in  the  popular  and  legal  sense,  but  not  in  the 
third  sense.  Gold  money  in  the  United  States  is  money  in 
every  sense  of  the  word. 

Functions  of  Money. — Money  has  been  called  one  of 
man's  greatest  inventions,  ranking  with  the  alphabet.  Cer- 
tainly present  civilization  would  be  impossible  without  it. 
Its  services  are  so  obvious,  however,  that  it  is  not  necessary 
to  dwell  upon  them.  The  reader  has  only  "  to  look  and  see.'' 
Kxchanjje  would  be  awkward  and  tedious  without  money, 

~  *     ' 

and  now  that  labor  is  so  divided  exchanges  form  a  part  of 
our  daily  life.  We  enjoy  few  material  good  things  which 


186  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

have  not  been  exchanged  in  one  way  or  other  many  times 
before  they  reach  us.  Without  any  medium  of  exchange 
the  man  with  a  horse  who  wanted  a  coat  instead  would  be 
obliged  to  hunt  for  a  tailor  who  desired  a  horse,  and  after 
finding  him  the  exchange  would  very  likely  be  defeated 
owing  to  inequality  of  values  of  articles  to  be  exchanged. 
The  coat  desired  might  be  only  half  as  valuable  as  the  horse, 
and  the  tailor  might  have  nothing  else  wanted  by  the  owner 
of  the  horse.  Simple  illustrations  like  this  can  be  continued 
indefinitely.  We  can  also  keep  values  easily  in  mind  and  com- 
pare them  readily  when  we  have  one  common  measure.  Money 
enables  us  to  travel,  carrying  stored-up  value  with  us,  and 
assists  in  the  accumulation  of  capital  by  providing,  as  it 
were,  a  receptacle  for  it.  If  we  raise  more  potatoes  than 
we  need,  we  can  keep  them  only  a  short  time,  but  we  can 
exchange  them  for  money,  which  can  be  kept.  Thus  we 
save  our  surplus.  Money  is  a  form  of  capital  which  has 
been  called  free.  It  can  by  exchange  be  turned  hither  or 
thither,  being  ready  for  the  best  use  which  may  offer. 

Qualities  Desirable  in  Money. — Many  things  have 
been  used  as  money  during  the  world's  history.  Among 
them  the  following  may  be  mentioned:  Cattle  nearly  every- 
where; furs,  especially  in  northern  countries;  oil;  wampum 
among  the  early  New  Englanders;  tea  at  Russian  fairs;  to- 
bacco, as  in  Maryland  and  Virginia;  iron;  copper;  all  the 
baser  metals  and  the  two  precious  metals,  gold  and  silver.  All 
civilized  nations  have  finally  found  gold  and  silver  best 
adapted  among  all  the  metals  for  money,  and  they  are  so  used 
to-day  in  every  part  of  the  globe.  The  following  are  rea- 
sons why  gold  and  silver  are  especially  suitable  tor  money- 
metals:  They  are  universally  desired,  .and  every  one  is  will- 
ing to  accept  them.  They  can  be  used  not  only  in  the  arts 
but  for  ornaments,  and  this  helps  to  give  them  stability  of 
value,  for  if  their  value  begins  to  fall  the  demand  for  them 
for  other  purposes  than  money  tends  to  increase,  and  this 
prevents  so  great  a  fall  in  tlieir  value  as  would  otherwise 
take  place.  Gold  and  silver  are  desirable  on  account  of  the 


is? 

vast  quantities  already  in  existence.  The  gold  in  coin  and 
bars,  and  silver  in  coin  is  now  estimated  to  be  worth  some  six 
thousand  millions  of  dollars,  and  compared  with  this  the 
yearly  production  is  small,  ranging  at  present  from  about 
two  hundred  and  ten  millions  to  t\vo  hundred  and  thirty-five 
millions  of  dollars. 

The  production  of  one  mine  in  one  year,  even  if  extraor- 
dinarily large,  produces  a  comparatively  small  effect,  being 
like  a  glass  of  water  thrown  in  a  pond.  It  must  diffuse  itself 
over  a  vast  surface. 

Their  high  specific  value — that  is,  high  value  in  proportion 
to  weight — adapt  them  to  use  for  money,  because  easily  trans- 
portable. Their  value  at  different  places  widely  separated 
is  more  nearly  equal  than  it  could  otherwise  be.  Durability 
and  indestructibility  are  valuable  qualities,  while  extreme 
divisibility  without  loss  of  value  makes  it  possible  to  meas- 
ure any  desired  value,  great  or  small.  Malleability  renders 
coinage  easy,  and  homogeneity  makes  any  one  ounce  or 
pound  just  as  valuable  as  any  other  pound  or  ounce.  They 
are  readily  recognizable  by  their  color,  their  peculiar  ring, 
and  by  other  attributes,  and  thus  they  are  adapted  to  popu- 
lar use.  No  other  metals  seern  in  like  measure  to  combine 
so  tunny  desirable  qualities. 

Paper  money  has  been  extensively  used.  Paper  money 
consists  of  promises  to  pay  on  demand,  which  people  are 
willing  to  receive  in  place  of  metallic  money.  They  are 
usually  promises  either  cf  banks  or  of  governments.  People 
take  them  because  they  believe  the  promise  will  be  kept,  or 
because  they  think  that  others  will  accept  them,  or  because 
they  have  been  made  a  legal  tender,  and  people  must  accept 
them  for  debt,  or  because,  as  usually  happens,  they  are  re- 
ceivable for  taxes.  Where  this  confidence  in  paper  money  is 
complete  it  is  preferred  to  precious  metals,  because  more 
convenient.  If  any  one  will  read  all  that  is  engraved  on  the 
paper  money  circulating  in  the  United  States  he  will  per- 
ceive its  nature,  and  he  will  discover  that  it  is  of  t\vo  kinds: 
notes  of  national  banks  and  notes  of  the  federal  government. 


188  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Adam  Smith  has  compared  paper  money  to  a  road  through 
the  air.  It  saves  the  use  of  the  precious  metals,  and  capital, 
otherwise  employed  as  a  medium  of  exchange,  can  be  used 
for  other  productive  purposes.  It  is  thus,  he  says,  as  real  a 
saving  as  if  we  could  travel  through  the  air  and  use  the 
ground  now  occupied  by  roads  for  agriculture  and  other 
purposes.  The  "  greenbacks,"  or  paper  money  of  the  United 
States,  now  amount  to  a  little  over  three  hundred  and  forty- 
six  millions  of  dollars.  They  perform  the  function  of  gold 
and  silver  even  better  than  gold  and  silver — in  foreign  ports, 
like  Hamburg,  often  selling  for  a  premium — and  this  saves 
the  country  this  amount  of  capital.  To  withdraw  them  from 
circulation  would  be  simply  a  waste.* 

"  Inflation." — Certain  dangers  connected  with  paper 
money  issued  by  government  must  not  be  overlooked.  It  is 
easy  to  set  the  printing  presses  at  work  and  to  issue  an 
illimitable  amount  of  money.  This  is  much  easier  than  tax- 
ation, and  has  often  promoted  waste  and  extravagance.  Be- 
sides, only  a  limited  amount  can  be  kept  in  circulation  at  its 
nominal  value,  and  when  this  is  exceeded  it  falls  below 
"  par,"  which  means  that  paper  money  will  no  longer  pur- 
chase as  much  as  the  same  amount  of  gold  and  silver  money. 
This  produces  great  inconvenience  and  suffering,  because 
the  inferior  money  drives  the  better  out  of  circulation,  and 
prices  rise  on  account  of  the  large  supply  of  money.  This 
diminishes  the  value  of  fixed  salaries  and  of  all  fixed  incomes, 
of  interest-payments  on  all  debts  and  of  wages,  until  these 
rise  correspondingly,  and  this  takes  a  long  time.  It  is  an 
inconvenience  in  international  trade,  because  foreign  coun- 
tries do  not  recognize  the  legal  tender  quality  of  paper  money 
and  will  not  receive  it  for  taxes,  and  because  foreigners 
lose  faith  in  a  paper  money  which  is  not  kept  at  par  with 
the  precious  metals. 

Is  Paper  Money  Safe? — Some  have  so  keenly  appreci- 
ated the  dangers  of  paper  money  that  they  have  entirely  op- 

*  The  writer  has  paid  a  premium  for  French  p;iper-money  in  Geneva, 
Switzerland,  where  he  could  have  obtained  gold  money  for  par. 


.  JS9 

posed  its  use.  This  docs  not  seem  reasonable.  Paper  money, 
like  other  instruments  of  a  high  civilization,  should  be  em- 
ployed with  care  ;  but  the  damage  which  the  best  instru- 
ments and  appliances  may  do  when  unskillfully  handled 
ought  not  to  induce  us  to  renounce  the  advantages  which 
they  offer.  Rather  we  ought  to  acquire  prudence,  and  this 
is  the  course  which  modern  nations  are  actually  pursuing. 
Several  countries  are  now  using  paper  money,  and  our  own 
among  the  number.  When  Congress  decided  to  leave  three 
hundred  and  forty-six  millions  of  "greenbacks"  in  circula- 
tion, alarm  was  expressed  in  many  quarters  ;  but  experience 
has  proved  that  apprehension  was  groundless.  It  may  be 
said  that  paper  money  should  always  be  kept  at  <lp:ir,"  that 
is,  government  should  always  pay  coin  for  paper  on  demand. 
When  this  is  done  paper  money  is  said  to  be  redeemable; 
when  it  is  not,  paper  money  is  said  to  be  irredeemable. 
Irredeemable  paper  money  is  bad;  redeemable  paper  money 
good.  Attention  should  then  be  directed  to  this  consider- 
ation :  How  can  paper  money  always  be  redeemed?  or,  how 
much  can  be  issued  with  safety  ?  Possibly  the  amount  the 
people  will  keep  in  circulation  at  par  may  have  some  rela- 
tion to  the  gross  revenues  of  government,  for  these  are  pay- 
able in  piper  money,  and  consequently  in  making  these 
payments  paper  money  is  as  good  as  gold.  The  gross  reve- 
nues of  our  various  governments,  federal,  State,  and  local, 
payable  in  pnper  may  be  three  times  the  amount  of  our 
"greenbacks."  Perhaps  we  may  say  that  fora  prosperous 
community  the  paper  money  which  the  people  will  gladly 
absorb  and  prefer  to  gold  and  silver  is  equal  to  one-third  of 
all  government  revenues  payable  in  this  kind  of  money. 
Possibly,  under  certain  circumstances,  more  can  be  kept  in 
circulation.  Only  careful  experimentation  can  determine, 
and  an  adequate  "reserve" — that  is,  supply  of  coin  for  pay- 
ment of  paper  on  demand — should  be  maintained.  Our  ex- 
perience in  the  United  States  is  an  instructive  example  of 
economic  experimentation. 
The  Amount  of  Money  Needed.— The  question  has 


190          AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

often  been  asked,  How  much  money  does  a  country  need  ? 
It  has  been  replied,  "  It  makes  no  difference.  If  the  supply 
is  abundant,  prices  will  be  high  ;  if  the  supply  is  small, 
prices  will  be  low  and  the  same  amount  of  money  will  go 
further.  A  little  money  will  do  the  work  of  money  as  well 
as  a  large  supply."  It  is  true  that  there  is  a  relation  be- 
tween the  supply  of  money  and  its  value,  and  that  large  sup- 
ply means  small  value  and  small  supply  large  value,  but  the 
conclusion  drawn  does  not  follow.  When  the  amount  of 
money  is  small  barter  is  always  extensively  used,  and  this  is 
an  inconvenience,  obstructing  trade  and  causing  loss.  Enough 
money  is  needed  so  that  it  can  be  used  in  all  ordinary  trans- 
actions of  life  and  to  enable  us  to  avoid  a  too  extensive  em- 
ployment of  barter.  But  one  of  the  most  common  business 
transactions  is  the  payment  of  wages.  We  need  enough 
money  so  that  it  will  not  be  too  valuable  to  use  for  that  pur- 
pose;  in  other  words,  the  day's  labor  of  an  ordinary  laborer 
should  not  be  inferior  to  the  value  of  a  piece  of  legal  tender 
coin  which  can  be  conveniently  carried.  We  need,  then, 
enough  money  so  that  the  value  of  a  coin  of  convenient  size 
shall  not  exceed  a  day's  wages  of  an  unskilled  laborer.  But 
it  is  desirable  that  money  should  be  still  cheaper,  so  that 
wages  may  be  divided  into  parts.  It  is  not  necessary  for 
money  to  be  cheap  enough  to  enable  us  to  make  our  smallest 
purchases  with  full  legal  tender  money,  because  in  addition 
to  full  legal  tender  money  all  countries  have  subsidiary  coins, 
like  our  fractional  parts  of  a  dollar,  containing  less  coin  in 
proportion  to  nominal  value  than  full  legal  tender,  and  legal 
tender  only  for  a  small  amount,  with  us  ten  dollars,  and 
minor  coins  like  "  nickels"  and  "coppers"  legal  tender  for 
still  less,  with  us  for  twenty-five  cents.  Silver  dollars  fulfill 
the  conditions  laid  down,  but  gold  does  not.  Gold  is  more 
convenient  for  large  payments.  The  two  supplement  each 
other. 

Fluctuations  in  the  Volume  of  Money. — The  ground 
just  given  for  the  need  of  a  certain  amount  of  money,  to  be 
determined  by  circumstances,  is  not  the  only  consideration 


MONEY.  191 

to  be  kept  in  mind  in  determining  the  amount  of  money  re- 
quired by  a  country.  After  the  above  requirement  has 
been  satisfied  it  may  make  comparatively  little  difference 
whether  we  have  much  or  little,  but  it  makes  a  great  deal 
of  difference  whether  we  increase  or  decrease  the  amount. 
It  is  not  the  "  much  or  little,"  but  it  is  the  "  more  or  less," 
that  is  of  vital  concern.  Nothing  produces  more  intense 
suffering  than  a  decrease  in  the  amount  of  money,  and  this 
is  on  account  of  the  connection  between  past,  present,  and 
future  in  our  economic  life.  lie  who  treats  every  economic 
question  as  if  every  day  were  a  period  of  time  apart  by  it- 
self has  scarcely  taken  the  first  step  toward  the  compre- 
hension of  economic  society.  Obligations  have  been  in- 
curred in  the  past,  and  these  are  payable  in  the  present  or 
in  the  future.  Now,  to  decrease  the  amount  of  money 
raises  the  value  of  every  debt  and  adds  to  the  burden  of 
every  debtor,  public  and  private.  It  increases  the  value  of 
notes,  mortgages,  railway  bonds,  and  local,  State,  and  federal 
bonds.  It  enriches  the  fe\v  at  the  expense  of  the  many. 
An  increase  in  the  amount  of  money  does  not  have  the  re- 
verse effect  if  it  is  small,  because  on  account  of  the  growth 
of  wealth,  the  continually  diminishing  use  of  barter,  and  the 
extension  of  trade  into  countries  formerly  outside  of  inter- 
national commerce,  the  opening  up  of  new  countries  in 
Africa,  Australia,  and  elsewhere  which  need  a  supply  of 
money,  the  value  of  money  tends  to  augment  unless  there  is 
a  growth  in  the  supply.  If  the  amount  remains  stationary, 
the  creditors  are  enriched  at  the  expense  of  the  debtors. 
If  the  amount  of  money  is  arbitrarily  increased,  so  that  the 
value  of  all  debts  may  fall,  it  amounts  to  virtual  robbery  of 
the  creditors.  When  arbitrarily  the  amount  of  money  is 
decreased  it  amounts  to  virtual  robbery  of  the  debtor  class. 
President  Walker  has  come  to  the  conclusion  that  while 
it  is  dangerous  to  increase  the  supply  of  money  arbitrarily, 
as  by  the  issue  of  paper,  it  is  a  fortunate  thing  if  the  amount 
of  money  slowly  and  continually  increases  without  direct 
government  action,  as  by  the  discovery  of  new  and  more 


192  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

fruitful  gold  mines.  His  reason  for  this  is  that  the  business 
community  is  always  a  debtor  community,  while  the  idle 
classes  are  creditors,  and  that  a  slight  depreciation  in  the 
value  of  money  brought  about  by  natural  causes,  and  which 
consequently  does  not  destroy  confidence  on  the  part  of 
capitalists,  gives  a  "  fillip  "  to  business  and  makes  it  pros- 
perous. It  may  also  be  urged  that  with  the  progress  of 
improvements  in  industry  prices  tend  to  fall,  and  that  unless 
money  increases  in  amount  those  who  take  no  active  part 
in  these  improvements  nevertheless  gain  the  benefit  of  them. 
Silver  Question  and  Bimetallism. — The  discussion  of 
the  amount  of  money  needed  by  a  country  naturally  brings  us 
to  two  topics,  called  the  silver  question,  and  bimetallism.  Silver 
and  gold  are  both  used  as  money,  and  as  government  coins  them 
it  determines  the  ratio  in  which  it  will  do  this.  A  ratio  which 
has  been  commonly  established  has  been  one  to  fifteen  and 
a  half,  which  means  that  in  full  legal  tender  coins  one  ounce 
of  gold  shall  be  equal  to  fifteen  and  a  half  ounces  of  silver. 
This  is  the  European  ratio,  but  the  United  States  has  estab- 
lished the  ratio  of  one  to  sixteen.  The  European  ratio  was 
maintained  for  about  seventy  years  during  this  century  by 
the  action  of  a  combination  of  countries  called  the  J^rtf/'n 
Monetary  Union,  in  which  Belgium,  France,  Switzerland, 
and  Italy  were  most  prominent.  These  countries  opened 
their  mints  for  both  gold  and  silver  to  every  one,  and  coined 
money  in  the  ratio  of  one  to  fifteen  and  a  half.  Every  one 
who  had  gold  or  silver  could  have  it  changed  into  money. 
About  JHT;{,  however,  Germany,  having  formerly  used  sil- 
ver, determined  to  replace  it  with  gold,  and  thus  threw  an 
immense  amount  of  silver  on  the  market,  while  the  demand 
for  gold  was  correspondingly  increased.  Other  countries 
pursued  similar  courses,  our  own  country  demonetizing  sil- 
ver, that  is  stopping  the  coinage*  of  silver,  making  it  only  a 
subsidiary  coin,  instead  of  a  full  legal  tender,  as  it  had  been. 
Like  Germanv,  we  introduced  what  is  called  gold  monomcttrl- 
lixui.  ( iold  alone  was  heticefbrt  h  to  be  converted  into  coins  for 
anv  one  who  offered  it  to  our  mints.  This  action  alarmed 


MOXEY.  193 

the  countries  of  the  Latin  Union,  and  they  suspended  the 
coinage  of  silver.  To  add  to  the  confusion,  large  discov- 
eries of  silver  had  increased  considerably  the  supply  of  silver, 
and  the  old  ratio  was  destroyed,  silver  falling  in  a  few  years 
so  much  in  value  as  measured  in  gold  that  it  required  twenty 
ounce*  and  more  of  silver  to  purchase  one  ounce  of  gold.  All 
this  naturally  increased  the  value  of  money,  and  so  the  value 
of  all  debts,  producing  great  distress  in  Germany  and  in  nil 
other  industrial  lands.  But  the  increase  in  debts  was  only  a 
part  of  the  mischief.  Oriental  and  South  American  coun- 
tries use  silver,  and  trade  was  easily  carried  on  with  those 
countries  so  long  as  gold  and  silver  would  readily  exchange 
at  an  established  ratio,  but  when  the  ratio  began  to  fluctuate 
an  uncertain  and  demoralizing  element  was  introduced  into 
trade,  which  rendered  it  highly  speculative,  and  entailed 
loss  upon  the  business  world.  The  merchant  in  Liverpool 
who  sold  goods,  to  a  merchant  in  India  agreed  to  receive  a 
fixed  sura  of  silver  money,  but  in  England  it  was  necessarv 
to  turn  this  into  gold,  and  a  fall  in  the  value  of  silver  might 
bankrupt  him. 

Bimetallism  has  been  proposed  as  a  remedy.  This  means 
that  at  a  fixed  ratio  government  must  coin  all  gold  and  silver 
which  any  body  desires  to  have  coined.  One  country  alone 
cannot  introduce  bimetallism,  because  other  countries  might 
send  to  it  all  their  silver  and  take  away  its  gold,  just  as 
Germany  evidently  contemplated  draining  France  of  at  least 
a  large  portion  of  her  gold.  Experience  seems  to  demonstrate 
that  national  bimetallism  is  out  of  the  question,  and  no 
scientific  economist  favors  it.  Economists  have,  however, 
generally  come  to  favor  what  is  called  international  bi- 
metallism. Internation.il  bimetallism  means  bimetallism 
based  on  an  international  agreement  like  that  which  obtained 
in  the  case  of  the  Latin  Union  before  1S74.  It  is  urged  that 
all  countries  should  agree  to  coin  gold  and  silver  at  the  ratio 
of  one  to  fifteen  and  a  half.  If  the  principal  commercial 
countries  of  the  world,  say  France,  (Jermany,  England,  and 
the  United  States,  should  enter  into  such  an  agreement,  there- 


194  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

is  no  doubt  that  the  ratio  could  be  maintained.  Gold  and 
silver  are  used  principally  for  money,  and  owners  of  gold 
and  silver  would  be  obliged  either  to  have  it  coined  at  the 
government  ratio  or  sell  it  on  the  market  for  use  in  the  arts. 
The  arts  absorb  only  a  small  proportion  of  the  annual  prod- 
uct, to  say  nothing  of  the  enormous  existing  supply  of  gold 
and  silver  money  in  the  world.  Governments  then  are  in 
the  position  of  monopolists,  and  by  agreement  could  main- 
tain a  fixed  ratio.  The  advantages  of  this  would  be  to 
insure  a  more  adequate  supply  of  gold  and  silver  and  to 
facilitate  business  transactions  between  gold-using  and  silver- 
using  countries. 

A  powerful  creditor  class  in  England,  which  gains  by  an 
appreciation  in  the  value  of  money,  it  has  been  stated,  has 
been  powerful  enough  to  keep  England  from  joining  in  the 
action  proposed  by  the  United  States  and  France  for  the  es- 
tablishment of  international  bimetallism,  and  Germany  has 
refused  to  co-operate  unless  England's  aid  could  be  secured. 
Consequently  up  to  the  present  it  has  not  been  possible  to 
establish  international  bimetallism. 

The  "  Bland  Bill." — A  free  coinage  of  silver,  that  is,  of 
all  silver  offered,  now  exists  in  no  country  which  uses  gold, 
but  the  United  States  has  introduced  a  limited  coinage  of  full 
legal  tender  dollars.  By  the  so-called  "Bland  Bill"  of  1878, 
at  least  two  million  dollars'  worth  of  silver  must  be  coined 
every  month  by  the  mints  of  the  United  States,  and  not  more 
than  four  million  dollars'  worth  may  be  coined,  and  in  the 
ratio  to  gold  of  sixteen  to  one.  The  silver  is  bought  at  the 
market  price,  and  the  government  makes  the  difference  as  a 
profit,  amounting  to  several  million  dollars  a  year.  Alarm  has 
been  expressed  because  it  has  been  feared  that  silver  will  drive 
gold  out  of  circulation.  Up  to  the  present  time  this  fear  has 
proved  as  baseless  as  the  anxiety  about  the  greenbacks.  The 
gold  coins  and  gold  bullion,  in  mints  and  assay  olh'ces  and 
ready  for  coinage,  amounted  to  over  seven  hundred  millions 
of  dollars  on  July  1,  18s*,  while  the  silver  money  in  the 
United  States  amounted  to  a  little  over  three  hundred  and 


AIOXEY.  196 

seventy-five  millions  of  dollars,  and  this  included  over  sev- 
enty-five millions  of  subsidiary  silver  coins.  It  is  difficult  to 
see  how  so  small  an  amount  of  silver  can  throw  out  of  cir- 
culation so  large  an  amount  of  gold.  We  are  now  coining 
about  thirty  million  silver  dollars  a  year,  and  it  will  take  over 
ten  years  for  the  amount  of  silver  to  become  equal  to  the 
amount  of  gold  which  we  now  have,  but  we  are  also  coining 
gold,  and  that  at  the  rate  of  twenty-eight  million  dollars  per 
annum.  The  per  capita  circulation  of  full  legal  tender  silver 
in  France  is  about  fifteen  dollars,  while  with  us  it  is  about  six 
dollars.  At  the  present  rate  of  coinage,  if  population  should 
not  increase  at  all,  it  would  take  over  fifteen  years  for  us  to  se- 
cure as  large  a  per  capita  silver  circulation  as  France.  At  the 
same  time  it  is  not  possible  to  view  the  future  without  some 
apprehension.  It  would  be  a  serious  misfortune  to  the  United 
States  to  be  reduced  to  an  exclusively  silver  basis  while  the 
chief  commercial  and  industrial  centers  of  the  world  use  gold 
as  a  money  basis.  A  recent  Parliamentary  Commission  in  En- 
gland has  recommended  that  without  international  agreement 
England  should  use  more  silver,  and  it  is  possible  that  the 
extreme  apprehension  about  the  fall  of  silver  may  fail  of 
realization  as  did  the  apprehensions  about  the  fall  of  gold 
after  the  discovery  of  the  gold  mines  in  Australia  and  Cali- 
fornia about  1848.  The  United  States  has  introduced  a 
convenience  in  gold  and  silver  certificates.  Gold  and  silver 
coin  may  be  deposited  with  the  United  States  and  certificates 
received.  The  gold  and  silver  coins  are  repaid  whenever  the 
certificates  are  presented,  and  in  the  meantime  the  paper 
certificates  are  more  conveniently  and  safely  carried  or  kept. 


Read  chapters  vi  and  vii  in  Walker's  Jfotici/,  Trade,  and 
Industry  for  an  able  presentation  of  scientific  bimetallism. 
The  grounds  for  gold  monometallism  are  well  presented  by 
Jevons  in  his  Jloncy  and  the  Mechunistn  of  Exchange. 


CHAPTER  III. 

CREDIT    AND    THE    INSTRUMENTS    OF    CREDIT:    BANKS    AND 
CLEARING   HOUSES. 

THE  development  of  economic  life  has  been  divided  into 
three  stages  with  respect  to  the  mode  in  which  goods  are 
transferred.  The  reader  will  remember  that  these  are  called 
truck-economy,  money-economy,  and  credit-economy.  The 
transfer  of  goods  becomes  continually  easier  as  we  pass  from 
one  to  the  other,  and  as  we  make  progress  in  any  one  of  the 
periods.  Probably  money  is  the  most  remarkable  contriv- 
ance for  facilitating  transfers,  but,  next  to  money,  credit  and 
its  instruments  have  rendered  greatest  service  in  that  part 
of  our  modern  economic  life  specially  concerned  with  trans- 
fers of  goods.  Credit  is  defined  by  John  Stuart  Mill  as 
"  permission  to  use  the  capital  of  another  person."  Pro- 
fessor Koscher  defines  credit  as  "  the  power  to  use  the  goods 
of  another,  voluntarily  granted  in  consideration  of  the  mere 
promise  of  value  in  return."  Credit  has  also  been  defined  as 
"confidence  in  the  ability  of  another  to  make  a  future  pay- 
ment." None  of  these  definitions  seems  quite  adequate. 
Credit  has  at  least  two  economic  meanings;  namely,  a  com- 
mercial transaction  of  a  certain  kind,  and  the  ability  to  en- 
ter into  such  a  transaction.  There  are  three  elements  in  a 
business  transaction  to  which  we  apply  the  term  credit: 
first,  the  present  transfer  of  goods;  second,  the  use  of 
the  goods  transferred;  third,  the  future  retransfer  of  the 
goods  or  an  equivalent,  that  is,  repayment.  Professor 
Knies,  of  Heidelberg,  has  defined  credit  as  merely  "  a  com- 
mercial transaction  between  two  parties  in  which  the  services 
or  the  value  rendered  by  the  one  falls  in  the  present,  and 
the  counter-service  or  counter-value  of  the  other  in  the  fut- 


CREDIT  AND  THE  INSTRUMENTS  OF  CREDIT.       197 

are."  But  this  seems  to  err  on  the  other  sitle,  by  neglecting 
the  element  of  confidence  which  enters  into  credit  transac- 
tions; not  necessarily  and  not  always  confidence  in  the  char- 
acter of  a  person  to  whom  credit  is  given,  that  is,  to  whom 
the  ability  to  enter  into  a  credit  transaction  is  accorded,  but 
confidence  in  some  person,  it  may  be  a  surety,  or  in  some 
thing,  as  valuable  things  deposited  as  "collateral,"  which  may- 
be sold  if  the  counter-service  is  not  rendered.  The  person 
who  transfers  goods  in  a  credit  transaction  is  the  creditor; 
the  person  to  whom  they  are  transferred,  the  debtor;  the 
amount  transferred,  the  debt. 

Instruments  of  Credit. — Growing  out  of  credit  trans- 
actions we  have  various  documents,  or  written  evidences  of 
these  transactions,  called  instruments  of  credit,  which  are 
used  as  substitutes  for  money,  and  which  have  in  great  com- 
mercial centers  for  large  transactions  so  far  displaced  money 
that  it  only  remains  as  "  small  change." 

Among  these  instruments  the  simplest  and  most  exten- 
sively used  is  the  check.  It  is  simply  an  order  to  a  banker 
with  whom  one  has  money  on  deposit  to  pay  to  a  person 
named  or  sometimes  "  to  bearer,"  a  sum  of  money.  Except 
in  retail  trade  and  payments  of  wages,  payments  for  goods 
and  services  are  usually  made  by  checks,  and  wages  are  some- 
times paid  in  checks,  and  goods  bought  at  retail,  especially 
when  considerable  in  amount  or  when  the  purchases  of  a 
month  or  more,  are  paid  for  by  checks.  As  an  instance  of 
the  extent  to  which  checks  are  used  the  author  may  men- 
tion that  in  two  years  he  remembers  to  have  received  money 
for  services  only  twice,  and  then  it  was  something  so  unu- 
sual that  it  seemed  a  strange  experience.  On  the  other  hand, 
he  probably  makes  half  his  payments  in  money. 

Bankers  use  checks,  and  when  a  banker  gives  a  check  on 
another  banker  it  is  usually  called  a  draft.  If  the  bankers 
reside  in  two  countries  it  is  often  called  a  bill  of  exchange. 

Promissory  notes  are  promises  to  pav,  under  conditions 
named,  at  the  expiration  of  a  certain  period.  These  are 
signed  by  the  debtor.  A  person  buys  goods  and  "  for  value 


198  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

received  "  promises  to  pay  the  person  of  whom  the  goods  are 
bought.  But  the  seller  may  also  "  draw  on  "  the  buyer  by 
means  of  a  bill  of  exchange,  also  called  a  draft.  Let  us  say, 

A.  is  the  seller,  B.  the  buyer.     A.  then  writes  out  an  order  to 

B.  to  pay  to  himself  or  a  third  party,  as  C.,  "  for  value  re- 
ceived," the  amount  of  the  debt.     A.,  the  creditor,  signs  the 
bill.     If  B.  acknowledges  the  debt,  and  is  ready  to  agree  to 
pay  it,  he  writes  on  the  bill  when  presented  "Accept"  and 
signs  his  name.     It  then  becomes  binding,  and  the  merchant 
who  does  not  pay  his  drafts   when  they  fall  due  becomes 
bankrupt.     A  check  or  bill  may  be  transferred  by  indorse- 
ment.    A  person  to  whom  payment  is  to  be  made,  the  payee, 
writes  his  name  on  the  back  with  an  order  that  the  money 
be  paid  to  a  fourth  party,  D.,  the  indorsee.     The  payee  who 
indorses  the  instrument  of  credit  is  the  indorser.     The  in- 
dorsee may  assign  the  instrument  to  still  another  party,  as  E, 
by  a  new  indorsement,  and  he  then  becomes  indorser.     This 
may  be  continued  indefinitely,  and  thus  the  instrument  may 
pass  from  hand  to  hand  in  place  of  money,  each  one  who  in- 
dorses it  becoming  responsible  provided  that  no  previous  in- 
dorser can  be  made  to  fulfill  his  obligation.     Other  terms  are 
readily  understood,  as  payer,  the  one  who  must  pay  ;  drawer, 
the  one  who  draws  an  instrument  of  credit  ;  drawee,  the  one 
on  whom  it  is  drawn. 

Book  credit  is  extensively  used.  When  goods  are  trans- 
ferred a  record  of  it  is  kept,  or,  as  we  ordinarily  say,  the 
goods  are  "charged/'  and  a  bill  is  afterward  sent  for  the 
amount.  A  vast  amount  of  credit  is  granted  in  this  simple, 
old-fashioned  way,  both  in  wholesale  and  retail  trade.  Re- 
cently large  mercantile  establishments  have  tried  to  abolish 
book-credits,  and  it  may  not  be  too  much  to  say  that  there 
has  been  a  general  movement  toward  restricting  it  and  defin- 
ing its  limits  more  accurately. 

Advantages  of  Credit. — The  advantages  of  credit  may 
be  thus  summarized  :  1.  Credit  furnishes  a  more  perfect  and 
convenient  means  of  payment  in  large  sums  and  between 
distant  places  than  the  precious  metals,  saving  time  and 


CREDIT  AND  THE  INSTRUMENTS  OF  CREDIT.       199 

labor.  This  is  effected  by  means  of  notes,  checks,  and  bills 
of  exchange.  It  is  thus  that  only  small  sums  of  money  are 
sent  from  one  country  to  another  in  international  trade. 
Only  balances  are  paid  in  money.  If  some  London  mer- 
chants owe  Xew  York  merchants  a  million  pounds  and  other 
New  York  merchants  owe  these  London  merchants  a  million 
pounds,  it  is  obvious  that  no  money  need  leave  either  country. 
The  London  merchants  will  send  orders  to  their  New  York 
debtors  to  pay  their  New  York  creditors.  This  is  the  simplest 
kind  of  cancellation  of  indebtedness.  In  actual  life  it  is 
more  complex,  but  the  principle  is  the  same.  If  the  London 
creditors  of  New  York  merchants  are  not  the  same  as  the 
London  debtors,  the  debtors  could  buy  orders  of  the  credi- 
tors and  send  them  to  New  York.  If  New  York  merchants 
owe  London  merchants,  it  is  possible  that  Paris  merchants 
may  owe  New  York  merchants  an  equal  sum,  while  London 
merchants  are  in  debt  to  Paris  merchants  to  the  same  amount. 
By  exchange  of  orders  all  debts  could  be  paid.  This  is 
called  arbitration  of  exchange.  Naturally  a  class  has  arisen 
which  deals  in  these  instruments  of  credit,  and  this  is  the 
class  of  bankers  and  brokers.  Debtors  and  creditors  both 
resort  to  them.  Bankers  and  brokers  are  the  middle-men 
between  debtors  and  creditors. 

"2.  Credit  takes  the  place  of  corresponding  amounts  of 
gold  and  silver.  This  is  a  saving,  enabling  us  to  employ  the 
precious  metals  for  oilier  useful  purposes. 

3.  Capital  is  employed  more  productively.     lie  who  pos- 
sesses capital,  but  is    for  any  reason  unable  or   unwilling  to 
use   it,   transfers   it  to   another    for   compensation,  and   thus 
both   are    benefited  as    well   as   the   public   economv.      Other 
things  being  equal,  it  is  given  to  him  who  will  pay  the  most 
for  it,  and   in  a   normal  condition  of   things    this   is    the   one 
who  can  employ  it  most  productively. 

4.  Credit   enables  those    who  have   business   qualifications 
and  no  capital,  or  inadequate  capital,  to  engage  in  business 
and  to  employ  their  talents  for  their  own  benefit  and  for  the 
benefit  of  society.     Many  thus  star:    without  capital,  and  in 

9* 


200  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

the  end  become  capitalists  themselves.  Credit  has  been  the 
starting-point  of  many  of  the  large  fortunes  now  existing. 
Credit  brings  together  in  numerous  instances  capital  with- 
out business  qualifications  or  inclination  for  business  and  tal- 
ent without  capital,  and  thus  may  be  said  to  be  not  without 
influence  in  uniting  capital  and  labor  harmoniously.  This  is 
particularly  the  case  with  those  institutions  which  supply 
capital  to  the  poorer  classes,  like  the  German  co-operative 
credit-unions,  which  furnish  artisans,  mechanics,  and  small 
traders  with  capital,  and  with  American  building  associations, 
which  furnish  the  same  classes  with  capital  for  the  construc- 
tion of  homes. 

5.  Credit  gathers  together  the  smallest  sums,  particularly 
by  means  of  savings  banks,  and  these  small  sums  forming  a 
large  aggregate  are  productively  employed  by  joint-stock 
companies  and  other  concerns.  Capital  is  thus  concentrated 
but  its  returns  are  scattered  among  the  people.  Credit  en- 
courages capital  accumulation  and  promotes  thrift.  Credit 
in  this  manner  gives  employment  to  small  accumulations  as 
they  are  made,  and  this  helps  men  to  provide  for  emergen- 
cies and  for  old  age.  Other  advantages  of  credit  will  sug- 
gest themselves  to  the  careful  observer. 

Evils  of  Credit. — The  dark  side  of  the  credit-economy 
must  not  be  overlooked.  It  continually  encourages  extrava- 
gance, and  this  is  a  fruitful  source  of  fraud  and  embezzle- 
ment. Credit  promotes  precarious  speculation,  because  those 
who  engage  in  it  have  little  of  their  own  capital  to  lose,  and 
are  over-reckless  with  the  capital  of  other  people.  Our  en- 
lire  land  is  strewn  with  the  ruins  of  businesses  wrecked  by 
men  who  have  mismanaged  the  property  which  unwise  credit 
gave  into  their  hands.  As  credit  sometimes  enables  the  poor 
man  with  gilts  recognized  and  favorably  situated  to  become 
an  independent  producer,  it  frequently  enables  the  one 
already  producing  on  a  vast  scale  to  extend  his  gigantic 
operations  and  crush  out  men  who  have  been  independent 
producers. 

It  has  been  said  that  all  ''  consumptive  credit,"  that  is, 


CREDIT  AND  THE  INSTRUMENTS  OF  CREDIT.       201 

credit  to  enable  one  to  spend  money  for  one's  personal  grati- 
fication, or  for  personal  use  in  any  way,  is  bad,  while  pro 
ductive  credit,  credit  for  carrying  on  a  business,  is  good; 
but  the  line  cannot  be  so  sharply  drawn.  Consumptive  credit 
frequently  leads  to  extravagance,  but  it  also  has  enabled 
many  a  young  man  to  develop  personal  powers,  and  to  be- 
come a  great  artist  or  scholar,  while,  as  just  seen,  productive 
credit  frequently  causes  loss. 

Banks  and  Clearing-Houses. — Bankers  have  already 
been  described  as  men  who  go  between  borrowers  and  lenders, 
or  as  middle-men  in  credit  transactions.  They  are  sometimes 
called  dealers  in  credit,  and  there  is  little  that  they  do  which 
is  not  in  one  way  or  another  connected  with  credit.  But 
banks  are  not  mere  agents.  They  have  a  capital  of  their 
own  which  servos  the  purpose  of  a  guarantee  fund,  and  they 
receive  money  which  their  customers  deposit  with  them,  and 
mingle  this  with  their  own,  gaining  exclusive  control  over 
it  all.  They  become  the  debtors  of  the  depositors  and  the 
creditors  of  those  to  whom  they  lend  money.  Their  source 
of  profit  is  not  chiefly  their  own  capital,  but  the  capital  de- 
posited, with  them.  Sometimes  they  pay  no  interest,  and  if 
they  pay  interest  they  charge  more,  the  difference  constitut- 
ing their  profit,. 

Formerly  banks  in  the  United  States  nearly  all  issued 
notes  which  circulated  as  money,  and  this  was  regarded  as 
their  principal  business.  Now  only  national  banks  are  al- 
lowed to  issue  notes,  and  they  must  deposit  bonds  at  Wash- 
ington as  security  for  this  circulation  in  addition  to  paying 
a  tax  for  the  privilege.  All  governments  in  civilixed  coun- 
tries have  greatly  restricted  the  power  of  banks  to  issue 
circulating  notes  to  serve  as  money,  and  the  number  of  banks 
that  find  a  source  of  profit  in  the  production  of  bank-money 
is  constantly  diminishing.  Perhaps  some  day  all  <;overn- 
nients  will,  as  has  been  advocated  by  many  able1  thinkers, 
reserve  to  themselves  the  exclusive  right  to  issue  paper 
money. 

Clearing-houses    are   labor-saving    institutions    originally 


202          AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

contrived  by  employees  of  banks.  Banks  in  a  city  have  con- 
tinual dealings  with  one  another.  A  customer  of  a  bank  de- 
posits with  it  all  his  checks,  no  matter  on  what  bank  drawn. 
It  consequently  happens  that  a  bank  in  Baltimore,  for  exam- 
ple, will  receive  checks  every  day  on  all  the  other  banks, 
while  all  the  other  banks  receive  checks  drawn  on  it.  For- 
merly there  was  continual  running  back  and  forth.  A  run- 
ner from  each  bank  went  to  all  the  other  banks.  Now  the 
representatives  of  all  the  banks  meet  in  one  common  place, 
and  exchange  checks,  drafts,  etc.,  and  only  the  differences 
between  the  sums  due  and  the  sums  which  a  bank  owes  are 
paid.  If  more  is  owed  to  a  bank  than  is  due  from  it  to  the 
other  banks,  it  receives  this  difference  from  the  clearing- 
house ;  if  it  owes  more  than  is  due  it,  it  pays  the  difference. 
The  sums  due  the  clearing-house  and  the  sums  which  it  must 

o 

pay  of  course  balance  perfectly,  and  it  is  left  without  any 
money  on  hand. 

The  clearing-house  statistics  illustrate  the  inadequacy  of 
money  to  do  the  business  of  the  world.  The  total  transac- 
tions of  the  clearing-houses  in  the  United  States  for  the  year 
ending  September  .30,  1888,  amounted  to  over  fifty  thousand 
millions  of  dollars,  or  more  than  thirty  times  all  the  money 
in  the  country,  bank-notes  included;  for  the  money  in  the 
country  at  the  time  was  only  about  sixteen  hundred  millions 
of  dollars. 


Walker's  Money,  Trade,  and  Industry,  chapters  x,  xi,  xii, 
has  a  good  account  of  banking.  See  also  his  Political  Econ- 
omy, advanced  course,  in  Part  VI,  chapters  xi  and  xii.  An 
excellent  account  of  banking  in  the  United  States  is  given 
by  Mr.  John  Jay  Knox  in  his  reports  as  Comptroller  of  the 
Currency  for  1H75  and  1876,  printed  in  the  United  States 
finance  reports  for  those  years. 

Bagehot's  Lombard  Street  is  instructive,  as  is  also  Gosch- 
en's  1'breiyn  Exchanges.  Gilbart's  work  T/iv  History,  Prin- 
ciples, and  l\actice  of  Ifankiny,  published  in  two  volumes 


CREDIT  AND  THE  INSTRUMENTS  t)F  CREDIT.       203 

in  Bohn's  Library,  is  an  interesting  production  written  by 
a  successful  banker,  Mr.  Gilbart  having  been  for  many  years 
Director  and  General  Manager  of  the  great  London  and 
Westminster  Bank.  Morse  on  Banks  and  Hanking  is  a 
standard  law-book  on  the  subject. 

The  author  has  written  an  account  of  German  "People's 
Banks"  in  the  Atlantic  Monthly  for  February,  1881.  It  is 
entitled  "German  Co-operative  Unions."  Some  useful  sug- 
gestions about  transfers  of  capital  will  be  found  in  J.  B. 
Clark's  Capital  and  its  J&trninys,  a  monograph  of  the  American 
Economic  Association,  1888.  Read  an  article  on  clearing- 
houses in  Johnson's  Cyclopedia,  by  W.  A.  Camp,  President 
of  the  New  York  Clearing-IIouse.  A  good  account  of  the 
London  and  New  York  clearing-houses  is  published  for 
fifty  cents  by  the  Financier  Company,  40  Broad  Street, 
New  York. 


CHAPTER  IV. 

THE  REGULATION  OF  INTERNATIONAL  COMMERCE. 

Objects  of  Regulation. — Nations  have  always  regulated 
international  commerce,  and  in  an  examination  of  history 
we  discover  three  motives  for  this  regulation.  First,  ancient 
nations,  as  the  Greeks,  Hebrews,  and  others,  dreaded  contact 
with  foreigners,  and  regulated  commerce  in  order  to  restrict 
it  and  reduce  intercourse  with  other  nations  to  a  minimum. 
Second,  nations  have  regulated  international  commerce  in 
order  to  make  it  a  source  of  revenue.  Sometimes,  as  in 
Athens,  of  classical  antiquity,  exports  and  imports  have  been 
equally  taxed.  England  at  present  taxes  only  imports,  but 
taxes  them  with  a  view  to  a  revenue  for  the  support  of  the 
national  government.  Third,  international  commerce  has 
been  regulated  by  nations  in  order  that  the  force  of  foreign 
competition  might  be  weakened  and  the  home  producers  en- 
couraged. This  is  usually  accomplished  by  means  of  taxes 
on  imported  commodities  when  commodities  of  the  same 
kind  can  be  produced  at  home.  These  taxes  are  called  pro- 
tective, and  collectively  they  are  spoken  of  as  a  protective 
tariff.  As  foreign  commodities  are  liable  to  special  taxes,  it 
is  supposed  that  thereby  the  domestic  producers  will  receive 
special  encouragement.  They  are  "  protected  "  against  for- 
eign competitors. 

Protection. — It  is  intended  in  this  chapter  to  discuss 
only  regulation  of  international  commerce  of  the  third  kind. 
This  regulation  is  called  protectionism,  and  it  will  at  once 
be  recognize  1  as  a  vast  subject  which  could  easily  be  made 
to  fill  several  volumes  like  the  present.  It  will  here  be  possible 
merely  to  mention  the  main  points  in  the  controversy  between 
those  who  believe  in  this  kind  of  regulation,  protectionists, 


REGULATION  OF  INTERNATIONAL  COMMERCE.     205 

and  those  who  oppose  it,  free-traders  ;  to  comment  briefly 
on  some  of  these  points ;  to  bring  forward  some  general  con- 
siderations which  ought  not  to  be  overlooked,  and  to  say  a 
word  in  conclusion  in  regard  to  tariff  reform,  on  which  all 
should  unite.  It  is  hoped  thus  to  give  a  general  view  of  the 
tariff  controversy  and  to  prepare  the  reader  for  further 
study  of  the  subject  in  works  mentioned  at  the  close  of  the 
chapter. 

Arguments  of  Protectionists. — It  is  argued  in  favor  of 
protectionism  that  it  promotes  nationalism,  and  this  is  held 
to  be  a  good  thing.  It  is  urged  that  domestic  trade  draws 
the  citizens  of  a  country  together,  while  international  trade  is 
cosmopolitan  and  tends  to  their  separation.  Protectionists 
maintain  further  that  protective  tariffs  are  necessary  in  order 
to  build  up  a  diversified  national  industrial  life.  They  claim 
that  there  exist  in  a  new  country  like  the  United  States 
many  natural  industrial  advantages  of  which  the  inhabitants 
cannot  avail  themselves  unless  they  are  at  least  temporarily 
protected.  Government  should,  they  say,  foster  infant  in- 
dustries in  order  to  develop  our  natural  resources  and  to 
produce  diversity  in  industrial  pursuits.  The  diversified- 
natural-industry  argument  and  the  protection-to-infant-indus- 
tries  argument  are  thus  supplementary.  It  is  held  that  older 
nations  with  their  superior  capital  and  acquired  skill  will 
break  down  ne\v  pursuits  in  their  infancy  in  order  thereafter 
to  have  the  market  to  themselves.  Closely  connected  with 
this  is  an  argument  based  on  military  grounds.  It  is  often 
thought  by  protectionists  that  industrial  national  independ- 
ence prepares  a  nation  better  for  international  war.  The 
home-market  argument  for  protection  naturally  f"llo\vs.  A 
home  market  is  claimed  to  be  superior  bce.iusc  it  is  alleged 
to  be  a  surer  market.  Producers  are  less  likely  to  be  de- 
prived of  it  bv  \var  and  other  emergencies.  It,  is,  moreover, 
urged  thai  it  is  beneficial  especially  to  the  farmer,  because 
it  saves  the  expenses  of  transportation  of  products  to  foreign 
lands.  It  ha-;  also  been  maintained  by  the  distinguished 
American  economist,  Mr.  Henry  C.  Carey,  that  a  country 


206  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

can  remain  permanently  prosperous  only  on  condition  that 
what  is  taken  from  the  soil  should  be  returned  in  manure 
and  other  kinds  of  fertilizers,  and  that  this  will  be  accom- 
plished only  when  products  are  consumed  at  home. 

Finally,  protection  has  been  advocated  in  the  United  States, 
especially  since  about  1840,  when  the  labor  movement  began 
to  assume  prominence,  on  the  ground  that  it  has  been  the 
cause  of  higher  wages  in  the  United  States  than  in  European 
countries,  and  that  it  is  necessary  to  maintain  these  high 
wages,  which  are  said  to  be  one  main  cause  of  our  higher 
civilization. 

Arguments  of  Free-traders. — It  is  frequently  al- 
leged that  protective  tariffs  are  a  violation  of  an  assumed 
natural  right  of  every  man  to  buy  his  goods  where  he  will 
and  to  sell  liis  products  wherever  he  sees  tit,  untrammeled  by 
human  laws.  This  argument,  based  on  natural  right,  may  be 
dismissed  as  a  "dogmatism  in  disguise,"  as  an  English 
jurist  calls  this  sort  of  reasoning.  High-sounding  phrases 
are  substituted  for  arguments,  and  under  their  cover  opin- 
ions are  thrust  upon  others  without  a  real  effort  to  substan- 
tiate them.  I  low  prove  the  natuial  right?  It  does  not 
appeal  to  the  majority  of  mankind  as  a  thing  right  in  itself 
to  buy  and  sell  where  one  pleases,  regardless  of  the  common 
weal,  and  all  history  is  against  such  exorbitant  claims  of 
individualism.  It  appears  to  most  men  that  the  public  wel- 
fare must  decide  questions  of  this  nature.  Protection  is  thus 
called  robbery,  because  it  violates  an  assumed  natural  right. 
It  is  much  to  be  desired  that  arguments  of  this  sort  should 
cease  to  be  heard  so  frequently. 

It  has  been  claimed  that  the  protective  tariffs  in  the  United 
States  are  unconstitutional.  It  would  be  most  unfortunate 
and  anomalous  if  nowhere  in  our  country  were  lodged  the 
power  to  pass  such  regulations  regarding  international  com- 
merce as  might  appear  to  be  required  for  the  promotion  of 
the  p.ublie  welfare.  But  this  argument  is  idle.  It  does  not 
correspond  to  the  opinion  of  our  best  jurists,  and  it  is  very 
certain  that  we  shall  never  see  a  Supreme  Court  in  the  United 


REGULATION  OF  INTERNATIONAL  COMMERCE.     207 

States  which  will  venture  to  pronounce  protectionism  uncon- 
stitutional. Protectionism  has  been  called  socialism,  but  this 
epithet  of  malignity  is  so  generally  applied  to  whatever  a 
person,  incompetent  to  argue  a  cause,  does  not  like  that  it 
•will  scarcely  terrify  any  one. 

The  really  able  arguments  of  free-traders  are  those  which 
aim  to  show  that  protectionism  on  the  one  hand  fails  to  accom- 
plish its  ends,  or  is  needless  for  the  accomplishment  of  the 
ends  it  contemplates;  on  the  other  hand,  actually  does  accom- 
plish positive  harm.  It  is  denied  that  protectionism  is  neces- 
sary to  foster  nationalism,  and  modern  experience  presents 
strong  testimony  to  support  this  denial.  During  the  past 
fifty  years  international  commerce  has  expanded  marvelously, 
and  international  communication  has  been  in  every  way  facil- 
itated, while  at  the  same  time  we  have  witnessed  a  remarka- 
ble growth  of  national  feeling  all  over  the  civilized  world. 

It  is  not  clear  that  protective  tariffs  are  necessary  to  pro- 
duce a  diversity  of  pursuits  in  a  great  country  like  the  United 
States.  It  is  admitted  that  a  purely  agricultural  nation  is 
not  likely  to  progress  rapidly;  but  it  would  seem  that  our 
enormous  extent  of  country,  our  varied  climate,  our  natural 
gifts  of  all  sorts,  had  in  themselves  amply  provided  for  suffi- 
cient diversity,  and  it  can  scarcely  be  maintained  that  one  or 
two  pursuits,  more  or  fewer,  can  be  of  importance.  A  vast 
number  of  pursuits  means  widely  extended  division  of  labor, 
and  this  is  by  no  means  an  unqualified  blessing. 

The  argument  for  protection  on  the  ground  that  it  is  a 
benefit  to  the  laboring-man  does  not  seem  to  the  writer  con- 
clusive. When  this  argument  is  analyzed  and  answered  in 
detail,  it  is  seen  to  involve  a  discussion  of  many  complex 
economic  problems.  One  consideration  onlv  will  be  suggested 
in  this  place.  Labor  comes  in  competition  with  labor,  not 
with  commodities.  Labor  desires  commodities,  and  the  more 
commodities  it  receives  the  better.  Now,  if  it  is  desired  to 
protect  labor,  a  tax  ought  to  be  put  on  imported  labor,  and 
labor  ought  thus  to  be  rendered  scarce.  If  this  were  done, 
then  those  who  desire  labor  would  be  obliged  to  pay  heavily 


208  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

for  it,  as  actually  happened  in  England  after  the  "  Black 
Death  "  in  the  fourteenth  century  had  killed  off  a  large  part 
of  the  laboring  population.  If  it  is  desired  to  benefit  labor, 
it  would  seem  to  the  author  that  after  importation  of  labor 
has  been  taxed,  and  labor  thus  rendered  scarce  and  dear,  the 
importation  of  commodities  should  be  encouraged  in  order 
that  labor  might  secure  an  abundance  of  them  cheaply. 

It  is  maintained  by  free-traders  that  protectionism  is  espe- 
cially injurious  because  it  diverts  industry  from  a  more  to  a 
less  productive  channel.  It  is  held  that  industrial  forces,  if 
let  alone,  will  seek  those  fields  which  yield  largest  returns, 
and  that  if  government  artificially  induces  them  to  take  an- 
other direction  the  factors  of  production  become  less  fruit- 
ful and  the  national  economy  suffers. 

It  is,  moreover,  alleged  that  protectionism  fosters  monop- 
olies, because  it  shuts  off  international  competition.  Recent 
combinations  of  domestic  producers,  as  seen  in  trusts,  which 
control  so  large  a  portion  of  the  industrial  field,  would  seem 
to  support  this  allegation.  It  is  certainly  taken  for  granted 
that  if  foreign  competition  is  shut  off  or  lessened  home  pro- 
ducers will  still  compete.  That  has  been  one  of  the  funda- 
mental arguments  of  protectionists,  but  now  we  find  home 
producers  combining  to  put  an  end  to  home  competition.  It 
is  scarcely  too  much  to  call  this  an  abuse  of  the  principle  of 
protection. 

Some  G-eneral  Considerations  ought  to  be  kept  in  mind 
in  tariff  discussions.  First,  its  importance  is  exaggerated.  We 
find  a  country  like  England  prosperous  under  free  trade;  we 
find  countries  like  France  and  the  United  States  prosperous 
under  protection.  It  is  of  real  but  not  of  vital  importance. 
Domestic  trade  exceeds  in  its  aggregate  amount  in  the  United 
States  almost  immeasurably  foreign  trade.  The  domestic 
trade  of  the  Mississippi  valley  alone  is  far  greater  than  our 
entire  foreign  commerce.  It  is  much  to  be  desired  that  other 
economic  questions  should  be  more  discussed.  Local  politi- 
cians dispute  about  the  tariff  excitedly,  and  divert  attention 
from  local  abuses.  The  proper  management  of  gas-works, 


REG  ULA  TION  OF  INTERN  A  TIONAL  COMMERCE.     209 

water  supply,  electric  lighting,  and  street-cars,  is  of  more  im- 
portance to  the  people  of  New  York,  Boston,  or  Baltimore 
than  the  tariff  controversy,  but  how  much  do  we  hear  about 
these  local  questions  from  our  politicians  ?  The  place  to 
begin  reforms  is  right  at  home,  at  our  own  doors.  When 
we  have  reformed  the  greater  abuses  of  our  municipal  gov- 
ernments, we  shall  very  well  know  how  to  reform  the  lesser 
evils  at  Washington. 

Second,  statistics  about  a  country's  prosperity,  urged  either 
for  or  against  protection,  are,  as  usually  presented,  of  no 
value.  The  tariff  policy  of  modern  countries  has  been  a  minor 
factor  in  their  industrial  life.  Inventions  and  discoveries,  es- 
pecially the  application  of  steam  to  industry,  and  the  growth 
of  intelligence,  have  been  the  chief  forces  which  have  made 
such  astounding  additions  to  the  wealth  of  the  world  during 
the  nineteenth  century. 

Third,  bad  as  it  may  be  in  many  respects,  the  American 
tariff  is  an  historical  growth,  and  during  the  century  of  our 
national  existence  it  has  taken  deep  root.  It  has  become  part 
of  our  life,  and  it  cannot  be  suddenly  eradicated  with  im- 
punity. If  it  is  true  that  American  labor  would  be  better  off 
without  it,  it  does  not  follo\v  that  it  ought  to  be  removed 
suddenly  in  the  interests  of  American  labor.  If  an  indus- 
trial growth  is  abnormal,  it  is  none  the  less  true  that  adjust- 
ment to  noumal  conditions  is  a  painful  process  and  should  be 
conducted  cautiously.  Displacements  of  labor  and  capital 
cause  suffering  and  loss.  At  the  same  time,  it  is  impossible 
to  tolerate  permanently  a  bad  condition  of  things,  and  while 
rashness  is  to  be  deprecated  progress  should  be  insisted  on. 

Our  capital  has  become  enormous.  Skill  has  been  devel- 
oped in  our  country,  and  it  is  not  clear  that  our  industrial 
leaders  are  not  quite  capable,  of  holding  their  own  with  the 
world  in  a  free  market.  The  fact  that  labor  receives  a  large 
share  of  the  product,  if  such  is  the  case,  does  not  render  labor 
and  the  other  factors  of  production  less  fruitful.  Does  the 
American  farmer  abandon  the  cultivation  of  land  because 
out  of  a  hundred  bushels  of  wheat  sjrown  lie  must  uive  the 


210  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

American  laborer,  say,  fifty,  while  his  European  rival  gives 
only  thirty  bushels  out  of  a  hundred  ?  He  still  has  fifty 
bushels  left. 

This  is  only  a  small  part  of  the  subject  of  protectionism  and 
free  trade,  a  very  small  part,  but  it  is  trusted  that  it  will 
prove  suggestive,  and  that  no  one  will  terminate  with  this 
his  tariff  studies. 

It  may  be  said  in  conclusion  that  reform  of  the  tariff  is 
possible  both  from  a  protectionist  and  from  a  free  trade 
stand-point.  What  is  desired  is  simplicity  in  our  tariff 
system,  which  is  now  complex.  No  article  should  be  taxed 
unless  there  is  some  good  reason  for  it.  Other  things  being 
equal,  the  fewer  articles  taxed  the  better.  Reductions  in  du- 
ties wherever  practicable  should  be  made.  Specific  duties, 
that  is,  duties  which  are  calculated  by  weight,  measurement, 
or  count,  as  simple  and  less  provocative  of  temptation,  ought 
to  be  substituted  in  every  possible  case  for  ad  valorem  du- 
ties, that  is,  duties  which  are  a  percentage  on  value,  a  thing 
so  hard  to  be  determined. 


List's  National  System  of  Political  Economy  presents 
protectionism  ably.  Taussig's  Tariff  History  of  the  United 
Nates  is  the  work  of  a  fair-minded  free-trader.  Patten's 
Premises  of  Political  l^conomy  advocates  protectionism  from 
a  new  stand-point,  and  is  worthy  of  consideration.  Thomp- 
son's Protection  to  Home  Industry  is  a  popular  presentation 
of  protection,  in  four  lectures.  Ely's  Problems  of  To-Day  is 
a  simple  and  easily  grasped  argument  for  tariff  reform. 
Special  attention  in  this  work  is  given  to  the  balance-of- trade 
theory. 


PART  IV. 

DISTRIBUTION. 


CHAPTER  I. 

INTRODUCTORY. 

IT  has  already  been  remarked  that  the  production  and  the 
distribution  of  the  annual  income  of  society  cannot  be  sharply 
separated,  and  the  reader  must  have  observed  that  more  or 
less  has  been  said  about  the  four  parts  into  which  the  prod- 
ucts of  industry  are  usually  divided;  namely,  wages,  interest, 
profits,  and  rent.  Taxes  may,  perhaps,  be  regarded  as  a  fifth 
part  into  which  the  annual  income  of  society  is  divided,  and 
we  may  treat  taxes  as  the  part  which  society,  organized  as 
State,  receives  for  its  participation  in  production.  But,  if 
this  view  is  taken,  we  have  a  fifth  part  peculiar  in  so  many 
respects  that  it  is  desirable  to  treat  it  neither  tinder  produc- 
tion nor  distribution. 

All  of  distribution  might  undoubtedly  be  considered  under 
the  general  heading  production,  but  on  the  other  hand  it  is 
frequently  asserted  that  distribution  is  "  the  true  center  of 
all  economic  inquiries,"  and  it  would  be  possible  to  treat  the 
whole  of  production  from  the  stand-point  of  distribution. 
The  truth  is  that  these  old  traditional  divisions  of  our  sub- 
ject-matter indicate  different  points  of  view,  and  on  this  ac- 
count it  seems  desirable  to  retain  them.  When  we  pass 
from  production  to  distribution  we  do  not  enter  a  new  field, 
but  we  look  at  an  old  field  of  investigation  from  a  new  point 
of  view. 

We  have  in  this  "  Part  "  of  political  economy  to  discuss 
chiefly  either  actual  or  contemplated  self-conscious  social  ef- 
forts to  control  the  distribution  of  the  income  of  industry 
among  families  and  individuals,  and,  save  in  the  first  two 
chapters,  only  secondarily  that  distribution  of  products  which 
flows  as  it  were  spontaneously  from  productive  processes.  It 


214  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

is,  however,  necessary  to  add  a  few  remarks  to  what  has  al- 
ready been  said  about  property,  that  fundamental  institution 
in  distribution,  and  about  wages,  interest,  profits,  and  rent, 
before  we  pass  on  to  subsequent  chapters. 

Property. — By  private  property  we  mean  an  exclusive 
right  or  control  of  a  person  over  an  economic  good,  and 
sometimes  the  economic  good  itself  over  which  this  exclusive 
right  is  exercised.  It  is  of  the  nature  of  property  that  it 
carries  with  it  the  power  of  exclusion  within  its  own  sphere, 
but  not  that  it  is  absolute.  Such  a  thing  as  an  absolute  right 
of  property  never  has  existed  and  never  will  exist.  The 
Roman  law  defined  property  as  "jus  utendi  vel  abutendi  re" 
the  right  to  use  or  consume  a  thing.  Now,  abutendi  has  by 
some  been  supposed  to  mean  abuse,  and  it  has  been  asserted 
that  the  Roman  law  gave  a  man  the  right  to  abuse  his  prop- 
erty, but  it  has  been  shown  that  ubiitendi  in  this  place  means 
"  use  up,"  or  consume,  and  the  Roman  law  conferred  no  such 
outrageous  right  on  a  proprietor.  All  codes  will  be  searched 
in  vain  for  an  unlimited  right  of  property.  There  are  two 
elements  in  property,  the  social  and  the  individual,  and 
sometimes  the  one  is  more  prominent,  sometimes  the  other. 
Sometimes  the  one  is  allowed  to  encroach  unjustly  on  the 
other.  John  Stuart  Mill  mentions  as  such  an  encroachment 
the  assumed  right  of  a  landed  proprietor  to  exclude  the  pub- 
lic from  the  contemplation  of  a  great  natural  wonder.  This 
was  felt  to  be  so  anomalous  in  the  case  of  the  land  surround- 
ing Niagara  Falls  that  New  York  State  and  Canada  bought 
out  the  private  owners  and  made  of  the  land  public  parks. 
The  general  public  has  had  from  time  immemorial  the  right 
to  use  as  pleasure  grounds  many  forests  in  Germany,  and 
when  in  Prussia  this  right  was  somewhat  restricted  a  few 
years  a'_co  it  was  felt  by  many  persons  to  be  an  unjust  en- 
croachment of  the  individual  element  on  the  social.  It  is 
only  within  its  own  sphere  that  the  right  of  property  is  ex- 
clusive. The  old  Teutonic  idea  of  property,  appropriate  to 
England  and  America,  makes  the  social  element  prominent, 
while  the  Roman  law,  with  its  negative  characteristics,  tends 


INTRODUCTORY.  215 

to  minimize  the  social  element  and  exaggerate  the  indi- 
vidual. 

Every  change  in  the  laws  of  property  changes  to  some  ex- 
tent the  mode  of  production  of  economic  goods,  but  to  still 
greater  extent  and  more  immediately  does  it  alter  their  dis- 
tribution. What  is  needed  is  flexibility  in  our  laws  of 
property  so  that  the  conception  may  be  gradually  altered  in 
a  conservative  spirit  in  order  to  meet  the  demands  of  existing 
economic  and  social  civilization.  Inflexibility  is  destructive, 
and  tends  to  revolution. 

Rent. — Rent  has  been  defined  as  the  annual  return  of  land 
in  itself.  When  one  person  parts  for  valuable  consideration 
with  the  use  of  land  what  he  receives  ib  called  rent,  but  the 
value  of  the  use  of  it  is  rent  when  he  retains  it  and  uses  it 
himself.  Now,  what  determines  the  amount  of  rent?  Land 
of  various  degrees  of  fertility  is  cultivated,  and  the  poorest 
l.ind  cultivated  is  said  to  be  on  the  "margin  of  cultivation." 
This  is  laud  which  pays  no  rent.  What  is  received  comes 
simply  as  a  return  on  capital  and  labor.  An  abundance  of 
land  can  be  found  which  pays  no  rent.  It  "just  pays "  to 
cultivate  it,  and  that  is  all.  Xo\v  the  greater  part  of  land  is 
either  better  situated  or  it  is  more  fertile.  It  more  than 
"just  pays"  to  cultivate  this  land,  and  the  difference  between 
what  this  land  yields  and  land  on  the  margin  of  cultivation 
is  the  amount  of  rent.  It  is  on  this  account  that  rent  is  said 
not  to  enter  into  prices.  When  we  buy  a  bushel  of  potatoes 
we  pay  the  same  whether  they  are  grown  on  poor  or  on  fer- 
tile land,  whether  grown  within  half  a  mile  of  the  market  or 
rive  hundred  miles  away,  provided  the  potatoes  are  equally 
good.  But  it  is  obvious  that  the  cost  of  growing  a  bushel  of 

o  ~  o 

potatoes  varies  widely.  It  is  the  cost  under  the  least 
advantageous  circumstances  which  determines  price.  Price 
must  be  high  enough  to  cover  this  cost  or  the  land  will  go  out 
of  cultivation,  just  as  poor  land  has  gone  out  of  cultivation 
in  England  since  our  West  was  by  railways  rendered  accessi- 
ble. When  the  potatoes  are  grown  under  favorable  circum- 
stances the  price  more  than  covers  cost,  and  a  surplus  is  left 
10 


216  AN  INTIi OD  L'CT/OX  TO  POLITICAL  ECONOM  Y. 

which  is  called  rent.  If  vent  paid  were  abolished,  price 
would  not  be  altered.  Ask  any  tenant  if  he  would  lower 
the  price  of  potatoes  if  his  landlord  would  release  him  from 
paying  rent. 

It  is  not  strictly  accurate  to  say  that  rent  does  not  enter 
into  price.  A  part  of  price  usually  paid  is  rent,  but  price  is 
not  altered  by  rent-payments.  Values  of  things  exchanged 
are  determined  by  their  production  under  the  least  favora- 
ble circumstances  under  which  they  can  be  permanently  pro- 
duced. Those  who  produce  under  more  favorable  circum- 
stances have  a  surplus.  Pure  economic  rent  is  not  return 
for  capital,  that  is,  for  improvements,  not  at  nny  rate  until 
they  have  become  inseparably  and  undistinguishably  blended 
with  the  land.  Return  for  improvements  is,  strictly  speak- 
ing, interest  and  profits.  It  is  sometimes  said  land  will  not 
sell  for  what  the  improvements  cost.  The  effect  of  improve- 
ments cannot  last  indefinitely,  and  they  must  be  paid  for 
year  by  year,  and  entirely  paid  for  within  an  often  very  lim- 
ited period,  or  they  do  not  prove  remunerative,  as  frequently 
happens.  In  any  section  of  our  own  East,  where  it  is  said 
that  there  is  no  economic  rent,  the  reader  will  be  able  to  find 
unimproved  land  for  which  people  will  gladly  pay  rent.  At 
the  same  time  it  is  hard  to  distinguish  pure  economic  rent 
of  agricultural  land  from  profits,  and  perhaps  impracticable 
to  carry  out  any  policy  which  would  require  this.  It  is  an 
easy  matter  in  cities  to  distinguish  rent  from  profits,  and  it 
is  done  every  day  in  cities  like  London,  New  York,  Balti- 
more, and  Boston.  Land  can  readily  be  bought  separately 
IVorn  improvements  or  improvements  without  the  land  in 
cities.  Whatever  surplus  land  yields  above  returns  on  labor 
and  capital  is  rent,  and  as  city  lots  are  not  cultivated,  what- 
ever is  received  per  annum  for  them  is  pure  rent.  It  is 
usually  called  ground-rent. 

Interest. —  Perhaps  the  broadest  generalization  which  we 
can  discover  with  respect  to  interest  is  this:  The  rate  paid 
lor  capital  lent  to  others  tends  to  become  th:it  percentage 
of  the  capital  which  will  equalize  the  capital  seeking  invest- 


INTRO  D  UC  TOR  Y.  217 

merit  and  the  amount  demanded.  If  more  is  offered  than 
people  will  take  at  the  existing  rate  of  interest  the  rate  of 
interest  \vill  fall,  unless  some  other  forces,  like  new  oppor- 
tunities for  investment,  intervene.  The  amount  demanded 
will,  of  course,  depend  on  opportunities  for  investment,  and 
the  fruitfulness  of  investments,  as  it  fixes  the  maximum 
amount  which  can  be  paid,  will  have  a  large  influence  in  de- 
termining the  rate  of  interest. 

Interest  covers  risk  and  must  vary  with  risk.  Interest  is 
also  governed  in  a  large  part  of  transactions  in  the  United 
States,  espeeiallv  in  rural  districts  and  small  towns  and  cities, 
by  positive  law.  Commands  of  Mosaic  legislation  forbid- 
ding interest,  and  similar  legislation  in  the  Middle  Ages,  while 
never  altogether  successful,  were  powerful,  and,  though  they 
finally  broke  down,  long  exercised  an  influence.  A  further 
treatment  of  all  these  and  many  other  considerations  must 
be  omitted  on  account  of  the  limitations  of  space. 

Profits. — It  may  be  said  that  whatever  is  left  after  pay- 
ing interest,  rent,  and  wages  is  profits.  It  is  the  return 
which  is  received  for  the  organization  and  management  of  a 
business  at  one's  risk.  It  is,  strictly  speaking,  not  "  w.-iges 
of  superintendence,"  lor  that  may  be  deducted,  and  often  is 
deducted. 

We  have  already  something  to  guide  us  in  determining 
rent  and  interest,  :md  in  the  next  chapter  suggestions  will  be 
offered  to  help  the  student  to  determine  what  part  of  the 
product  of  industry  will  fall  to  labor  in  wages. 

Profits  and  interest  are  often,  in  practical  business, 
"  lumped  "  together.  They  are  not  separated,  but  the 
manufacturer  or  merchant  frequently  speaks  of  his  entire 
income,  interest  on  his  money,  his  own  wages  and  profits, 
as  his  profits,  although  the  more  careful  discriminate  be- 
tween the  various  elements  of  income.  Profits  and  interest 
are  calculated  in  percentages.  We  speak  of  profit  of  ten  per- 
cent, or  twenty  per  cent.,  more  or  less,  as  the  case  may  be. 
It  means  that  the  returns  on  what  is  invested  bear  that 
ratio  to  the  capital  invested.  If  capital  is  of  the  value  of 


218  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

one  hundred  dollars  and  profits  are  ten  per  cent.,  of  course 
profits  will  be  ten  dollars.  This  gives  no  proportion  be- 
tween what  labor  receives  and  what  capital  receives,  as  has 
been  absurdly  supposed.  It  has  even  been  said  if  capital 
receives  ten  per  cent,  labor  receives  ninety.  It  is  strange 
that  any  one  could  believe  any  thing  so  ridiculous.  This 
would  only  be  true  in  case  the  return  on  the  capital  and 
labor  in  profits  and  wages  each  year  always  equaled  the 
capital  invested;  whereas  these  returns  are  sometimes  noth- 
ing, sometimes  forty-live  per  cent,  of  the  amount  of  capi- 
tal, as  happened  in  a  large  establishment  with  a  capital  of 
one  million  dollars  in  1888,  as  the  author  happens  to  know, 
and  sometimes  the  profits  alone  exceed  the  capital,  as  hap- 
pened in  the  case  of  a  railway  construction  company  in  re- 
gard to  which  the  author  has  trustworthy  information.  The 
percentage  of  proiits  and  of  interest,  either  separately  or  to- 
gether, tells  us  nothing  about  the  distribution  of  products 
between  labor  and  capital.  If  we  know  that  interest  and 
profits  have  fallen,  this  also  tells  us  nothing  about  the  dis- 
tribution of  products  between  labor  and  capital.  We  do 
not  even  know  that  capital  and  enterprise  are  receiving  a 
smaller  relative  share  than  formerly.  This  can  only  be  shown 
when  it  has  been  demonstrated  that  capital  has  not  increased 
in  so  great  a  proportion  as  the  rate  of  interest  or  profits  has 
fallen.  Let  us  for  the  present,  therefore,  "  lump  "  profits 
and  interest  and  call  both  proiits,  and  call  the  entire  return 
profits  on  capital,  although,  strictly  speaking,  part  of  it  is 
the  share  of  the  tittreprcm-Hr,  and  is  reward  for"  enterprise." 
If  proiits  have  fallen  from  ten  to  five  per  cent,  and  capital 
has  quadrupled  in  amount,  profits  have  increased  in  their 
total  amount  one  hundred  per  cent. 

Capital  and  Capitalization. — \Ve  must  also  distinguish 
between  capital  invested  ami  capitalization.  Capitalization 
means  the  amount  at  which  a  property  is  valued,  and  it  may 
be  ten  times  the  cost  of  capital  actually  invested.  When 
we  speak  of  profits  as  being  ten  per  cent,  or  live  percent, 
we  mean  profits  on  free  or  disposable  capital,  and  this  rate 


INTRODUCTORY.  219 

depends  on  opportunities  for  production  which  are  still  open, 
not  those  which  have  already  been  seized.  Let  us  suppose 
that  the  returns  on  investments  still  open  to  all  are  about 
ten  per  cent.,  but  that  the  returns  to  a  telephone  company 
or  an  electric  lighting  company  which  lias  actually  invested 
one  hundred  thousand  dollars  is  one  hundred  thousand  dol- 
lars ;  the  undertaking  will  be  capitalized  at  one  million 
dollars,  so  as  to  conceal  the  actual  rate  of  profits  ;  and  as 
profits  fall  on  new  investments  open  to  all,  capitalization  of 
old  and  lucrative  enterprises  rises  in  proportion,  although  no 
new  capital  is  invested.  One  familiar  form  which  this  takes 
is  "  stock-watering,"  but  it  is  also  seen  in  higher  prices.  If 
a  house  yields  one  thousand  dollars  a  year,  and  ten  per  cent, 
is  a  fair  return  for  house  property,  it  will  be  valued  at  ten 
thousand  dollars;  but  if  profits  fall,  and  five  per  cent,  is  con- 
sidered a  good  return,  it  will  be  valued  at  twenty  thousand. 
This  increase  of  capitalization  is  sometimes  an  unconscious 
process,  and  a  man  will  at  times  feel  poorer  when  he  is  re- 
ceiving five  per  cent,  on  his  capitalization  of  an  investment 
than  when  he  was  receiving  ten  per  cent.,  although  his  capi- 
talization has  quadrupled  without  any  additional  investment 
of  capital. 

Profits  of  Monopolies. — It  issaiil  profits  tend  to  equality. 
This  may  be  true  of  pure  interest  in  a  large,  well-supplied 
market.  Then-  are  in  such  markets  constant  fluctuations  and 
a  constant  tendency  toward  a  level — a  level  always  chang- 
ing, at  least  slightly.  When  the  How  of  capital  is  perfectly 
free  the  same  tendency  may  be  observed  with  respect  to 
profits  in  the  strict  sense,  although  here  many  obstacles 
which  we  may  call  c<-<»i<»n!<>  friction  render  the  movement 
toward  equality  slower  and  less  certain.  The  laws  of  com- 
petition bring  about  this  tendency  toward  equality.  If  one 
branch  of  industry  is  receiving  exceptionally  high  profits,  as 
soon  as  it  becomes  known  other  t:nti'i>)>ri'iif-nrs  will  direct 
their  capital  into  this  channel,  and  this  will  tend  to  make 
various  industries  cqu-dly  attractive — to  reduce  them  to  a 
level.  Of  course,  within  each  kind  of  industry  profits  will 


220  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

vary  according  to  situation,  and  more  particularly  according 
to  the  capacity  of  the  entrepreneur.  All  this  supposes,  how- 
ever, a  free  flow  of  capital,  and  it  is  a  peculiarity  of  mod- 
ern industrial  life  that  in  an  ever-increasing  proportion  of 
the  industrial  field — that  represented  by  natural  monopolies 
and  artificial  monopolies — the  flow  of  capital  is  not  free,  al- 
though outside  of  these  favored  undertakings  competition  is 
continually  increasing  in  severity.  While  the  ordinary  mer- 
chant or  manufacturer  may  rejoice  to  receive  five  or  ten  per 
cent.,  much  capital  is  invested  which  yields,  not  on  capitaliza- 
tion but  on  capital,  twenty,  thirty,  forty,  and  even  one  hun- 
dred per  cent.  This  brings  us  to  one  aspect  of  the  so-called 
great  "  social  question,"  and  it  shows  how  far  those  are  from 
having  grasped  its  full  significance  who  reduce  it  merely  to 
a  labor  problem.  It  is  quite  as  much  the  merchant's,  the 
manufacturer's,  the  lawyer's,  the  teacher's  problem.  It  is 
what  its  name,  "  social,"  indicates,  the  problem  not  of  any 
class,  but  of  society. 

On  rent,  read  Mill's  Politifcil  Economy  (unabridged  cdi- 
ti"ii)  TJook  II,  chap.  xvi.  Those  who  have  access  to  the  New 
York  Independent  may  find  some  suggestions  in  five  articles 
on  Lfixff,  fj<ibor,  and  T<IJ'  ttion,  by  the  author,  which  ap- 
peared December  1,  8,  15,  22,  29,  1887. 


CHAPTER  IT. 

AND  THE  WAGKS-SYSTEM. 

The  "  Standard  of  Life." — It  has  been  the  opinion  of 
many  of  the  ablest  political  economists  for  over  a  century 
that  what  is  technically  called  standard  of  life,  or  standard 
of  comfort,  determines  the  wages  of  labor.  This  means  that 
laborers  have  an  habitual  standard  of  life,  a  certain  style  of 
life,  and  that  what  they  receive  as  wages  enables  them  on 
the  average  just  to  keep  up  this  standard,  but  to  do  no  more. 
They  are  able  to  occupy  such  a  sort  of  dwelling,  to  wear 
such  clothes,  to  eat  such  food,  and  generally  to  do  such  tilings 
as  this  standard  requires,  but  no  more.  This  has  also  been 
called  the  iron  law  of  wages.  There  is  so  overwhelming  an 
array  of  tacts,  gathered  from  widely  separated  countries  and 
from  periods  so  distant  from  one  another,  which  confirm  this 
conclusion,  that  it  is  difficult  to  resist  it.  The  iron  law  of 
wages  is  not  a  law  like  a  law  in  physics,  but  it  expresses  in 
a  rough  sort  of  way  a  powerful  tendency.  Among  the  strik- 
ing evidences  of  the  truth  of  the  theory  of  the  standard  of 
life  as  tin;  norm  for  wages,  the  fact  is  especially  noteworthy 
that  as  a  rule  it  seems  to  fail  to  benefit  the  laboring  popula- 
tions on  the  whole  and  for  any  length  of  time  for  the  wiie 
and  children  to  earn  money,  even  apart  from  all  other  con- 
siderations than  money-getting.  The  world  over,  when  it 
becomes  customary  for  the  wife,  or  wife  and  children,  to  work 
in  factories,  it  very  soon  becomes  necessary  for  them  to  do 
so  to  support  the  family.  The  wages  of  the  head  of  the 
family  and  the  earnings  of  the  entire  family  as  before  just 
maintain  the  st.indanl  of  comfort  among  that  class  of  the 
population.  Professor  K.  W.  liemis  has  called  attention  to 
tiie  fact  that  in  the  textile  industries  of  Rhode  Island  and 


222  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

eastern  Connecticut,  where  the  women  and  children  work,  the 
earnings  of  the  entire  family  are  no  larger  than  in  other  in- 
dustries, like  those  in  metal,  in  western  Connecticut,  where 
only  the  man  works.  Similarly  an  increase  in  the  length  of 
the  working  day  confers  no  benefit,  while  it  has  yet  to  be 
shown  that  a  reduction  of  the  length  of  the  working  day  ever, 
in  any  part  of  the  world,  reduced  wages  permanently.  On 
the  contrary,  it  is  more  likely  to  raise  the  standard  of  life 
and  to  raise  wages  ultimately.  Many  important  conclusions 
flow  from  this  principle,  which  cannot  be  elaborated  in  this 
place.  It  was  probably  on  account  of  a  conviction  of  the  es- 
sential validity  of  this  law  that  Hon.  A.  S.  Hewitt,  when 
Mayor  of  Xew  York  city,  refused  his  sanction  to  an  appar- 
ently philanthropic  scheme  to  establish  lunch  stands  in  dif- 
ferent parts  of  New  York  where  something  to  eat  could  be 
obtained  for  a  cent.  Probably  most  political  economists 
would  agree  with  Mr.  Hewitt  in  thinking  that  it  would  in 
the  end  do  more  harm  than  good.  At  any  rate,  simply  to 
reduce  the  cost  of  living  will  in  itself  never  render  men 
really  prosperous. 

This  tendency,  when  called  the  iron  law  of  wages,  has  been 
used  as  a  means  of  agitation  to  provoke  discontent,  but  it  ap- 
plies in  a  rough  kind  of  way  to  all  classes,  and  to  judges  and 
college  professors  quite  as  relentlessly  as  to  workingmen, 
perhaps  even  more  so.  If  the  standard  is  what  it  should  be, 
what  more  can  be  asked  than  that  we  should  be  able  to  main- 
tain it?  It  should  include  provision  lor  all  renl  needs  and 
provision  for  accidents  ;  future  emergencies,  disability  on 
account  of  old  age,  and  the  like  should  be  included.  A  deposit 
in  the  savings  bank  and  insurance  policies  ought  to  be  apart 
of  the  habitual  standard  of  life.  The  standard  is  unfortu- 
nately not  what  it  should  be,  but  it  can  be  raised.  It  has  been 
7-ai.»ed  in  the  past,  and  the  true  kind  of  social  reform  cannot  be 
brought  about  unless  it  is  raised  still  further,  and  the  more 
nearly  it  becomes  in  all  respects  what  it  ought  to  be  the  nearer 
we  are  to  our  goal — a  goal  which,  like  all  ethical  goals,  we 
can  forever  approach  but  never  reach.  Perfection  is  infinite. 


WAGES  AX D  THE  WAGES-SYSTEM.  223 

The  standard  of  life  lias  at  times  fallen,  and  it  at  times  re- 
quires a  tremendous  effort  to  maintain  it,  and  a  still  might- 
ier effort  to  raise  it.  It  requires  now  a  struggle  for  our  la- 
boring classes  to  maintain  it  against  the  onslaught  of  cheap 
and  degraded  labor  pouring  in  upon  us  from  Europe,  and  un- 
til rei-ently  from  Asia  also.  It  is  on  this  account  desirable 
to  restrict  immigration  to  some  extent,  for  a  lo\ver  standard 
means  a  lower  civilization.  The  struggle  to  maintain  a 
standard  of  life,  when  not  too  severe,  has  beneficial  results 
which  ought  not  to  be  overlooked.  When  the  struggle  is 
successful  it  results  in  increased  efficiency,  and  is  a  spur  which 
human  nature,  when  too  sluggish,  needs.  Sometimes  the 
struggle  has  this  result  in  the  United  States  :  a  large  pro- 
portion of  native  Americans  abandon  pursuits  invaded  by 
those  with  a  lower  standard  of  life,  and  attempt  elsewhere 
to  keep  their  standard.  A  part  of  these  displaced  succeed, 
and  attain  a  much  higher  standard  than  the  old.  Others 
cannot  make  the  ascent  and  become  a  dissatisfied  element  in 
society. 

The  Law  of  Distribution. — All  this  is  in  perfect  har- 
mony with  what  has  been  previously  said.  In  the  struggle 
for  the  division  of  products  the  most  slowly  increasing 
factor  is  at  an  advantage.  When  the  product  is  once 
given,  the  more  one  takes  the  less  is  left  for  others.  If  you 
take  three  quarters  of  the  loaf,  only  one  quarter  is  left  for 
rne,  and  no  tine  phrases  can  alter  this  fact.  The  struggle 
m-ide  by  interest  and  rent  serins  to  be  powerful — a  quiet, 
regular  sort  of  struggle,  obeying  strong  tendencies — while 
the  active,  noisy,  and  at  times  violent  struggle  takes  place 
when  it  comes  to  dividing  what  is  left  afier  paying  rent  and 
interest  between  labor  ami  capital.  Now  the  standard  of 
comfort  means  this:  tint  population  will  not  increase  beyond 
the  point  where  the  struggle  can  be  maintained.  If  the 
struggle  begins  to  In-  to<>  severe  few  people  will  marry,  or 
those  who  do  marry  will  be  older  when  they  marry,  or  on 
account  of  increased  want  the  mortality  of  children,  always 
terrific  among  the  poor,  will  increase;  and  thus  in  one  way 
10* 


224  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

or  another  the  factor  labor  will  increase  more  slowly.  Other- 
wise one  of  two  things  must  happen:  either  new  openings 
for  labor  must  be  found  or  the  standard  must  fall. 

Differences  of  Wages. — We  have  different  standards 
of  life  in  different  occupations,  consequently  differences  of 
remuneration,  whether  paid  as  .  wages  or  salaries.  What 
•determines  differences  of  wages  of  various  occupations? 
All  sorts  of  fanciful  replies  have  been  given.  The  differ- 
ences are  largely  historical.  We  must  go  back  to  a  man's 
grandfather  or  great-grandfather.  Occupations  where  re- 
muneration is  high  are  so  difficult  to  enter  that  few  are  able 
to  surmount  the  difficulties.  Peculiar  and  rare  qualities  are 
required  ;  opportunities  which  come  from  favorable  environ- 
ment; an  expensive  training,  which  few  parents  are  able  and 
at  the  same  time  willing  to  give.  What  one  is  depends 
chiefly  on  one's  parents,  and,  as  has  been  often  said,  one  has 
no  voice  in  the  selection  of  one's  parents.  We  who  have 
been  blessed  in  this  respect  ought  to  feel  that  we  owe  a 
special  duty  to  humanity. 

Adam  Smith  enumerated  the  following  five  causes  for  the 
differences  of  wages  in  different  employments  :  First,  tlie 
agreeableness  or  disagrecableness  of  the  employments  them- 
selves. Secondly,  the  costliness  or  cheapness  or  the  diffi- 
culty and  expense  of  learning  them.  Thirdly,  tlie  constancy 
or  inconstancy  of  employment  in  them.  Fourthly,  the 
small  or  great  trust  which  must  be  reposed  in  those  who 
exercise  them;  and  fifthly,  the  probability  or  improbability 
of  success  in  them.  All  this  presupposes  that  grown  men, 
perfectly  free  to  select  their  occupations  —  free  not 
merely  so  far  as  the  law  is  concerned,  but  free  so  far  as 
their  command  of  resources  is  concerned  —  look  over 
the  entire  industrial  field  and  choose  their  employment.  A 
recent  English  writer,  pointing  out  that  occupations  are  se- 
lected by  parents  very  generally,  adds:  "When  a  person  is 
one  of  the  large  number  who  have  been  in  childhood  badly 
nourished,  badly  housed,  badly  clothed,  badly  educated, 
and  not  at  all  trained  to  any  particular  occupation,  let  no 


WAVES  AXD   THE  WAGES-SYSTEM.  225 

one  prate  to  him  of  liis  freedom  to  choose  what  occupation 
he  thinks  proper.  His  legal  freedom  to  choose  many  occu- 
pations is  about  as  much  use  to  him  as  his  legal  freedom  to 
fly  with  wings  in  the  air."  Nevertheless,  with  proper  quali- 
fications, what  Adam  Smith  says  explains  many  differences 
in  wages.  It  is  left  as  an  exercise  to  readers  and  students 
of  this  book  to  discover  by  observation,  careful  and  long- 
continued,  the  real  amount  of  truth  in  Adam  Smith's  causes 
for  differences  of  wages  in  different  employments. 

Piece-Work. — Wages  are  paid  by  time  or  by  the  piece. 
A  day,  week,  or  month  is  paid  for  at  an  agreed  price,  or  a 
price  is  paid  for  each  piece  of  work  done,  as  for  each  bushel 
of  corn  husked.  Payment  by  the  piece  would  seem  to  be 
fairer  for  all  parties,  but  abuses  have  in  manufactures  so 
generally  been  connected  with  it  that  it  is  opposed  by  many 
intelligent  artisans,  and  careful  political  economists  will  be 
slow  to  give  piece-work  unqualified  approval.  Physicians 
testify  that  by  producing  feverish  over-exertion  it  has  in 
certain  quarters  shortened  average  life  materially,  and  there 
is  a  proverb  in  Saxony,  in  Germany,  to  the  effect  that  piece- 
work is  work  that  murders.  Piece-work  has  frequently  been 
used  to  break  down  regulations  and  laws  limiting  the  time 
of  work,  and  more  frequently  still  to  bring  about  a  reduc- 
tion of  wages.  The  workers  strain  every  muscle  and  nerve 
to  c  arn  hi^li  waives,  and  after  a  high  rate  of  speed  lias  been 
secured  the  price  per  piece  is  reduced,  sometimes  time  and 
time  again.  Peculiarly  cruel  and  aggravating  cases  of  this 
kind  have  come  under  the  writer's  observation.  When  not 
connected  with  abuses  pavment  by  piece  has  manv  advan- 
tages, and  is  at  times  preferable  for  all  parties. 

The  Sliding  Scale. — A  sliding  scale  of  wages  has  been 
introduced  by  a  powerful  trades-union,  the  "Amalgamated 
Association  of  Iron  and  Steel  Workers,"  chief! v  in  Pennsyl- 
vania, and  it  appears  to  have  given  general  satisfaction  and 
to  have  kept  the  industrial  peace  better  than  the  onlinarv 
waives  svstem.  Wa^es  vary  with  selling  price  of  the  prod- 
uct, and  thus  labor  shares  to  some  extent  in  the  prosperity 


226  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

of  capital.  The  sliding  scale  is  known  elsewhere  in  this 
country  and  in  England,  and  it  has  met  with  a  good  deal  of 
favor  from  economic  writers. 

Arbitration  and  Conciliation  have  accomplished 
much  for  the  preservation  of  industrial  peace  wherever  thor- 
oughly and  honestly  tried.  Sometimes  voluntary  boards  are 
appointed  by  employers  and  employed  to  adjust  differences, 
and  sometimes  they  are  appointed  by  public  authorities. 
New  York  State  arid  Massachusetts  have  permanent  boards 
of  arbitration,  and  both  have  accomplished  good.  The  New 
York  board,  however,  appears  to  have  inadequate  powers,  but 
the  Massachusetts  board,  which  must  be  summoned  by  local 
authorities  and  has  power  to  get  at  all  the  facts,  lias  accom- 
plished in  a  short  space  of  time  wonderful  things.  It  is  more 
effective  than  police  or  militia,  and  less  expensive  for  pre- 
serving peace  in  the  excitement  connected  naturally  witli 
wages  controversies. 

Factory  Inspection.— Labor  legislation,  honestly  con- 
ceived, and  properly  enforced  by  factory  inspectors,  has  been 
productive  of  incalculable  good.  England  is  the  model  coun- 
try in  this  respect,  and  Massachusetts  in  our  own  Union  is 
the  banner  State  in  labor  legislation.  Labor  legislation 
should  aim  to  keep  c'hildren  away  from  work  and  in  schools, 
to  restrict  to  its  lowest  terms  the  employment  of  women,  to 
limit  the  working-day  for  married  women  and  to  give  them 
a  Saturday  half-holiday,  to  shorten  the  length  of  the  work- 
ing-day for  young  persons  under  eighteen  to  the  length  pre- 
scribed by  physiology  and  hygiene  and  to  give  them  also 
a  Saturday  half-holiday,  to  compel  employers  to  fence  in 
dangerous  machinery  ami  otherwise  guard  against  accident, 
and  to  render  them  pecuniarily  responsible  for  accidents  to 
employes  by  employers'  liability  acts.  We  have  here  a  goal, 
and  no  country  ever  yet  suffered  in  international  competition 
by  approximations  to  it.  England,  which  has  come  nearest  to 
it,  is  the  most  dreaded  country  on  the  globe  in  international 
competition,  and  Massachusetts,  which  has  gone  farther  than 
any  one  of  our  States  in  this  direction,  is  one  of  the  richest 


WAGES  A XD   THE  WAGES-SYSTEM.  227 

in  the  Union.  Economists  say  that  England's  action  lias 
given  her  a  stronger  and  better  laboring  population,  and  has 
established  her  industrial  supremacy  upon  a  firmer  founda- 
tion than  ever. 


Read  Clark  and  Wood  on  wages,  in  the  monograph  of 
American  Economic  Association  entitled  Contributions  to  the 
Wayes  Question;  also  Patten  on  Stability  of  Prices,  the 
same  publishers.  Advanced  students  who  read  German 
will  find  the  treatment  of  wages  by  Professor  von  Ihering, 
the  distinguished  jurist  of  Gottingen,  unusually  suggestive. 
It  is  found  in  chapter  ix  of  the  second  edition  of  volume  i 
of  his  Ztceck  im  Jtec/tt.  On  arbitration  and  conciliation 
read  Joseph  D.  Weeks's  pamphlet,  Labor  Differences  and 
Tfteir  Settlement,  New  York,  1886,  Society  for  Political  Edu- 
cation ;  also  the  excellent  work  on  Industrial  Peace,  L.  L. 
F.  R.  Price,  with  preface  by  Professor  Marshall.  Also  read 
article  by  the  author  in  North  American  lleview  for  1880. 
The  best  account  of  English  factory  legislation  is  a  fasci- 
nating work,  Tlie  Life  and  Work  of  the  JZarl  oj  tihaftcs- 
bury,  by  Hodder. 


CHAPTER  III. 

LABOR    ORGANIZATIONS. 

THE  old  mediaeval  guilds  were  organizations  of  all  the 
factors  of  production.  Employers  and  employed  united  in 
one  body  regulated  production,  but  the  control  rested  chiefly 
with  the  masters.  Modern  labor  organizations  embrace,  as 
a  rule,  only  one  of  the  factors,  the  employed,  and  their  pur- 
pose is  to  promote  the  interests  of  this  one  factor  whenever 
those  interests  clash  with  those  of  the  employers. 

Trades-Unions  and  Knights  of  Labor. — Labor  or- 
ganizations may  be  divided  into  two  classes,  and  as  a  mat- 
ter of  fact  they  are  so  divided  to-day  in  the  United  States. 
These  classes  arc  the  trades-unions  and  the  Knights  of 
Labor.  The  trades-unions  are  primarily  organizations  of 
skilled  artisans.  According  to  the  old  trades-union  idea 
each  craft  should  be  organized  by  itself.  The  Knights 
of  Labor  are,  according  to  their  original  idea,  organizations  of 
employes  both  skilled  and  unskilled,  regardless  of  trade.  They 
aimed  to  break  down  tlie  barriers  to  common  action  found 
in  differences  of  occupation.  The  Knights  of  Labor  have 
also  taken  a  broader  outlook  upon  society,  and  have  sought  to 
accomplish  greater  things  than  the  t  r.-ides-unions.  The  trades- 
unions  presuppose  a  difference  of  interest  between  employers 
and  employed.  Thev  are,  as  it.  we're,  a  lighting  body.  This 
divergence  of  interests  exists,  and  lighting  bodies  often  pre- 
serve peace.  ''If  you  would  have  peace,  prepare  for  war,"  is 
an  old  maxim,  ami  struggles  between  labor  and  capital  have 
been  most  violent  in  I>el'_rium,  where  no  efficient  organiza- 
tions have  e\i>tod.  Uiit  the  Knight-  of  Labor  have  looked 
beyond  a  period  of  conflict  to  a  union  of  productive  factors 
which  should  be  peaceful.  They  hope  in  some  way  to  see 


LABOR  ORGANIZATIONS.  229 

labor  and  capital  united  in  the  same  hands.  They  desire 
to  make  capitalists  of  laborers,  and  to  organize  production 
on  a  co-operative  basiy.  It  is  doubtless  on  account  of  this 
ultimate  aim  that  they  admit  employers,  of  whom  many 
are  members,  and  also  the  professional  classes,  a  considerable 
number  of  teachers,  journalists,  and  preachers  being  also 
members.  The  Knights  of  Labor  are  in  so  far  a  return  to 
the  principle  of  the  old  guild  organization. 

Knights  of  Labor  and  trades-unions  have  both  modified  their 
original  programmes.  The  trades-unions  have  united  in  larger 
federal  organizations,  first  in  the  central  labor  unions  of  our 
cities,  and  later  in  the  national  body,  the  American  Federa- 
tion of  Labor.  This  national  body  has  also  made  provision 
for  the  organization  of  unskilled  working-men,  and  for  local 
unions  of  working-men  of  diti'erent  trades  where  those  engaged 
in  each  trade  are  too  few  for  separate  organization.  The 
Knights  of  Labor  have,  on  the  other  hand,  organized  sepa- 
rately a  considerable  number  of  trades  in  what  are  often 
called  "district  assemblies,"  and  have  thus  recognized  more 
largely  than  they  were  at  first  inclined  to  do  the  principle 
of  federation  with  separate  crafts  as  a  basis. 

A  bitter  contest  between  the  Knights  of  Labor  and  trades- 
unions  has  been  waged,  but  there  is  now  some  evidence  of 
an  effective  desire  for  harmonious  co-operation  in  the  prose- 
cution of  common  aims. 

Growth  of  Labor  Organizations. — It  has  been  re- 
cently estimated  that  a  million  working-men  in  the  United 
States  are  members  of  labor  organizations.*  The  number, 
of  course,  varies.  A  period  of  prosperity  for  the  organiza- 
tions is  generally  followed  by  one  of  reaction,  and  the  present 
seems  to  be  a  continuation  of  the  period  of  reaction  which 
began  early  in  ISSG,  perhaps  in  18Sf>.  Reaction  always 
terminates  in  a  new  advance,  and  thus  far  in  the  United 
States  each  new  advance  lias  carried  the  labor  organizations 
farther  forward  than  ever  before. 

*  See  IV.  K.  W.  Bonus's  valuable  article  on  working-men  in  tho  United 
Slates  in  the  Aiuericuu  edition  of  lite  Encyclopedia  Britnuuica. 


230  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Fanners'  Organizations. — Two  powerful  organizations 
of  fanners,  the  Patrons  of  Husbandry  and  the  National 
Farmers'  Alliance,  are  more  like  the  old  guilds  in  this,  that 
they  are  organizations  of  independent  producers  designed  to 
protect  their  interests  against  attacks  from  other  social 
classes.  Recent  years  have,  however,  witnessed  an  approach 
of  labor  organizations  and  farmers'  organizations  to  each 
other  for  the  attainment  especially  of  common  political  aims. 

Labor  Organizations  a  Natural  Growth.  —  Labor 
organizations  are  not  forced  products.  They  have  grown 
up  almost  spontaneously.  They  have  arisen  naturally  out 
of  modern  industrial  conditions.  Wherever  capital  is  a 
separate  factor  in  production,  and  is  organized  on  a  large 
scale,  labor  inevitably  organizes  itself  sooner  or  later  in  order 
that  it  may  stand  on  an  equal  footing  and  make  labor  con- 
tracts advantageously  for  itsc'f.  Let  us  suppose  one  capital- 
ist employs  a  thousand  men.  If  these  men  are  not  organ- 
ized each  man  individually  treats  with  all  the  capital  in  the 
establishment.  All  the  capital  is  represented  by  one  man, 
but  one  laborer  represents  but  a  thousandth  part  of  the  labor 
force,  and  he  is  not  in  a  position  of  equality.  The  laborers 
therefore  unite  their  labor,  and  speaking  through  one  repre- 
sentative place  all  the  labor  against  all  the  capital.  This  is 
something  which  so  naturally  suggests  itself  that  we  find 
labor  organizations  in  all  modern  lands. 

Opposition  to  Labor  Organizations. — Labor  organ- 
izations met  at  first  with  violent  opposition,  and  it  cannot 
be  said  that  in  their  earlier  stages  or  even  in  their  later 
growth  this  opposition  is  by  any  means  groundless.  How- 
ever, whatever  bad  traits  naturally  characterize  labor  or 
ganizations  are  aggravated  so  long  as  they  are  obliged  to 
struggle  for  existence.  Whenever  the  fact  of  their  right  to 
exist  is  frankly  acknowledged,  and  employers,  ceasing  to  per- 
secute them  or  their  officials,  recognize  the  man  who  treats 
in  a  representative  capacity  for  the  sale  of  the  commodity 
labor  as  courteous! v  as  they  would  an  agent  for  the  sale  of 
corn  or  wheat;  finally,  whenever  courts  cease  to  harass  them 


LABOR  ORGANIZATIONS.  231 

with  legal  chicanery,  as  courts  long  did  in  England,  they  tend 
to  become  strong  and  conservative.  The  fact  is  undoubted 
that  most  serious  abuses  and  outrages  have  attended  the  prog- 
ress of  labor  organizations,  but  they  have  simply  exhibited 
weaknesses  of  sinful  human  nature  and  weaknesses  which  have 
been  observed  in  more  frightful  manifestations  in  those  other 
organizations,  nevertheless  excellent,  which  we  call  Church 
and  State.  The  true  course  is  to  recognize  the  beneficence  of 
the  principle  of  organization  and  to  contend  only  against 
abuses.  It  can  scarcely  be  too  much  to  say  that  this  is  the 
opinion  of  nearly  all  competent  observers  in  England,  Ger- 
many, and  the  United  States.  The  following  quotation  about 
labor  organizations  from  Work  and  Wages,  by  Professor 
Thorold  Rogers,  of  Oxford,  not  only  expresses  the  view  of 
many  scholars  and  business  men,  but  illustrates  a  common 
change  of  attitude  on  the  part  of  many  fair-minded  persons 
who  have  seen  previous  prejudices  against  labor  organizations 
displaced  by  a  careful  examination  of  their  claims:  "These 
institutions  were  repressed  with  passionate  violence  and 
malignant  watchfulness  so  long  as  it  was  possible  to  do  so. 
When  it  was  necessary  to  relax  the  severities  of  the  older 
laws,  they  were  still  persecuted  by  legal  chicanery  whenever 
oppression  could  on  any  pretext  be  justified.  As  they  were 
slowly  emancipated,  they  have  constantly  been  the  object  of 
alarmist  calumnies  and  sinister  predictions.  I  do  not  speak 
of  the  language  of  newspapers  and  reviewers,  which  simply 
ri'-echocd  the  passions  of  the  hour  ;  far  graver  were  the  alle- 
gations of  Senior  and  Thornton.  .  .  .  I  confess  to  at  onetime 
having  viewed  them  suspiciously;  but  a  long  study  of  the 
history  of  labor  has  convinced  me  that  thev  are  not  only  the 
best  tVicnds  of  the  workman  but  the  best  agency  for  the  em- 
ployer and  the  public;  and  that  to  the  extension  of  these 
associations  political  economists  and  statesmen  must  look  for 
tlu'  solution  of  so'iie  among  the  most  pressing  and  difficult 
problems  of  our  times." 

It   may  be  proper  to  state  that  while  the   author  does  not 
hope  for  so  much  as  Professor  Rogers  seems  to  from  labor 


232  Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

organizations  alone  his  experience  lias  in  the  main  been  the 
same. 

Space  is  too  limited  to  permit  an  explanation  of  the  im- 
measurable misapprehensions  of  the  general  public  in  regard 
to  labor  organizations.  One  of  them  is  that  innocent  and 
peace-loving  working-men,  perfectly  contented,  are  misled 
by  agitators  who  have  been  placed  at  the  head  of  labor  or- 
ganizations,. Careful  observation  will  show  that  the  influ- 
ence of  labor  leaders  is  conservative  on  the  whole,  and  that 
strikes  originate  among  the  masses  and  are  generally  resisted 
by  the  leaders  so  long  as  it  is  possible.  It  will  also  show 
that  leaders  are  readier  than  a  large  proportion  of  the  "  rank 
and  file"  in  the  organizations  to  terminate  strikes. 

Success  and  Failure  of  Strikes.  —  Strikes  produce 
harm,  and  every  effort  should  be  made  to  avoid  them. 
They  are,  however,  successful  in  more  cases  than  is  ordinarily 
supposed,  and  when  occasionally  a  decided  victory  is  scored 
the  gain  is  immense.  An  agitation  of  a  few  weeks  and  a 
strike  of  a  few  days,  together  with  an  act  of  legislature,  es- 
tablished a  reduction  of  the  hours  of  labor  from  seventeen 
to  twelve  for  the  hundreds  of  street-car  employes  in  IJalti- 
more.  This  is  probably  an  advantage  permanently  secured. 
Other  illustrations  might  be  given,  and  nothing  is  gained 
by  shutting  our  eyes  to  such  facts. 

Violence  is  disastrous,  and  the  welfare  of  the  masses  can 
only  be  secured  by  peaceful  measures.  While  condemning 
in  deserved  terms  violence,  which  too  often  accompanies 
strikes  and  which  reacts  against  working-men,  it  is  only  fail- 
to  recognize  the  fact  that  this  violence  is  largely  due  to 
criminal  classes  in  cities  which  improve  such  opportunities 
for  disturbance,  and  not  wholly  to  the  working-men.  It  is 
manifest,  however, that,  even  so,  it  is  only  another  argument 
against  strikes  wherever  they  can  be  avoided,  and  lor  the  set- 
tlement of  differences  between  labor  and  capital  by  peaceful 
arbitration. 

Temperance. — Nearly  all  labor  organizations  are  temper- 
ance societies,  and  many  of  their  oflicers  are  total  abstainers. 


LABOR  ORGANIZATIONS.  233 

They  have  greatly  diminished  intemperance  among  those 
who  belong  to  them. 

Educational  Value. — Their  educational  value  is  also 
noteworthy.  The  debates- and  discussions  which  they  foster 
stimulate  the  intellect  and  do  much  to  counteract  the  deaden- 
ing effects  of  a  widely  extended  division  of  labor. 

Labor  organizations  bring  men  and  frequently  also  women 
together  and  furnish  opportunities  for  social  culture.  Temp- 
tations to  coarse  indulgence  are  thereby  lessened,  and  an  im- 
portant side  of  human  nature  receives  better  opportunity  for 
development. 

It  may  be  hoped  that  labor  organizations  are  preparing 
the  way  for  a  better  civilization.  Certainly  one  of  the  most 
hopeful  features  of  the  situation  is  the  willingness  of  organ- 
ized working-men  to  listen  to  strong  and  manly  words  from 
those  who  understand  their  real  purposes,  who  go  among  them 
and,  with  sympathy  for  their  just  aspirations,  endeavor  to 
help  them  to  distinguish  between  the  foolish  and  the  wise, 
the  wrong  and  the  right,  to  show  them  how  to  pursue  the 
good,  and  to  inspire  them  with  faith  in  that  righteousness 
which  alone  can  exalt  the  masses  in  a  nation;  that  is,  the 
nation  as  a  whole. 


Read  chapter  viii,  on  "  Wages  as  Affected  by  Combina- 
tions," in  Clark's  Philo&ophy  of  Wcnltfi.  It  is  an  admirable 
treatment  of  fundamental  principles.  Ely's  fcihor  Jforcmoit 
in  Annrii-a  is  the  only  book  which  attempts  to  treat  scientific- 
ally the  subject  with  which  it  deals.  See  especially  chapters 
iii-vi.  A  work  edited  by  (icor^e  E.  McNeil],  called  Tin'. 
L'lhnr  J[<»'<>.mc)it,  the.  P/-i>!,h  in  (if  7J»-if<ii/,  is  written  mostly 
by  those  who  have  actively  participated  in  the  work  of  labor 
organizations,  and  is  the  best  presentation  by  working-men 
of  their  view  of  labor  organizations.  The  student  should 
not  fail  to  study  labor  organizations  at  first-hand,  as  nat- 
uralists studv  animals,  and  not  be  satisfied  with  garbled 
newspaper  accounts  for  information.  Tin  Journal  <>j'  Unilu.l 


234  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Labor,  the  organ  of  the  Knights  of  Labor,  and  The  Carpen- 
ter, the  organ  of  the  Brotherhood  of  Carpenters,  both  pub- 
lished in  Philadelphia,  the  Labor  Leader  of  Boston,  the 
Furniture  Worker's  Journal,  and  the  Granite  Cutter's  Jour- 
nal of  New  York,  and  any  one  of  many  other  labor  papers 
will  be  of  assistance. 


CHAPTER   IV. 

PROFIT  SHARING    AND  CO-OPERATIOtf. 

Profit-Sharing  in  the  United  States.— Labor  organi- 
zations strive  to  secure  higher  wages  for  working-men  than 
they  would  otherwise  obtain,  and  thus  to  increase  their  share 
of  the  products  of  industry.  Profit-sharing  goes  a  step 
further  than  labor  organizations.  Those  who  advocate 
profit-sharing  wish  laborers  to  secure  a  portion  of  profits  in 
addition  to  ordinary  wages.  It  is  held  that  this  arrangement 
promotes  economical  use  of  material  and  machinery  by  em- 
ployes and  generally  increases  their  zeal  and  efficiency. 
The  result  is  a  larger  total  product  and  a  larger  revenue  for 
the  wage-receivers.  Profit-sharing  has  been  extensively  tried 
in  the  United  States,  and  it  has  been  successfully  introduced 
by  some  of  the  largest  productive  establishments  in  the 
country.  Recent  testimony  of  American  employers  who 
have  tried  it  is  almost  unanimously  in  its  favor,  although 
one  prominent  manufacturer  abandoned  it,  and  one  or  two 
have  not  found  that  it  quite  realized  their  expectations. 
Some  influential  employers  appear  to  be  enthusiastic  in  their 
praise  of  its  practical  working,  and  a  member  of  a  firm  which 
has  distributed  over  one  hundred  thousand  dollars  of  profits 
to  its  employes  writes  to  the  author  that  he  and  his  part- 
ners consider  it  the  best  investment  that  they  ever  made.  He 
thinks  that  they  have  the  most  loyal  set  of  working-men  in 
the  world.  Instances  recorded  in  three  months  showed  that 
at  least  ten  thousand  working-men  had  in  that  period  been 
admitted  to  a  share  in  profits  in  the  United  States. 

Profit-sharing  may  be  extended  to  capital-sharing — partial 
ownership  of  capital  by  working-men  and  participation  in 
management.  The  lar^e  manufacturing  establishment  of 


236  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Godin,  in  Guise,  France,  serves  as  the  best  example  which 
occurs  to  the  author.  M.  Godin  gradually  educated  a  large 
body  of  working-people  to  that  point  where  they  could  take 
a  part  in  the  management  of  his  large  business,  and  at 
the  same  time  encouraged  them  to  acquire  a  part  of  the 
capital.  If  recent  reports  are  trustworthy,  the  workingraen 
have  finally  acquired  and  now  manage  the  entire  business. 

If  we  cull  industry,  as  ordinarily  organized  in  our  great 
mercantile  and  manufacturing  establishments,  despotism,  we 
may  call  an  establishment  where  laborers  participate  in  cap- 
ital ownership  and  management,  under  the  chief  control  of 
some  one  who  is  recognized  as  an  industrial  superior,  a  con- 
stitutional monarchy.  These  terms,  although  indicative  of 
mere  analogies,  are,  after  all,  instructive.  The  despotic  prin- 
ciple, the  one-man  power,  both  in  politics  and  in  industry , 
is  an  excellent  thing  in  its  own  time  and  place,  and  in  in- 
dustry it  has  necessarily  continued  longer  than  in  the  po- 
litical sphere.  It  is  a  phase  of  development,  but  it  ought 
not  to  lie  regarded  as  final.  A  large  part  of  the  indus- 
trial troubles  of  modern  society  undoubtedly  find  their 
origin  in  the  fact  that  development  of  the  economic  depart- 
ment of  social  life  has  proceeded  more  slowly  than  the  de- 
velopment of  other  departments.  Elsewhere  the  despotic 
principle  has  been  softened  or  displaced,  but  continuing  in 
the  economic  sphere  it  is  a  discordant  element;  yet  it  is  diffi- 
cult for  most  of  us  to  see  how  for  a  long  time  to  come  we 
can  wholly  dispense  with  the  one-man  principle  in  industry. 
It  should,  however,  be  softened  as  far  as  practicable,  and  men 
should  be  gradually  trained  to  understand  industrial  republi- 
canism or  democracy.  M.  Godin  has  set  a  noble  example. 

Industrial  democracy  means  self-rule,  self-control,  the  self- 
direction  of  the  masses  in  their  efforts  to  gain  a  livelihood. 
Industrial  democracv  is  industrial  self-government,  and  this 

•/  O  ' 

is  found  in  pure  co-operation. 

Co-operation  is  of  two  kinds:  coercive,  which  means 
governmental  action,  and  voluntary.  We  have  here  to  do 
with  voluntary  co-operation,  and  this  is  what  is  usually  meant 


PROFIT-SHARING  AND  CO-OPERATION.  237 

when  co-operation  is  spoken  of.  Working-men  combine  their 
own  capital,  purchase  their  own  plant,  manage  their  own  af- 
fairs in  their  own  way,  at  their  own  risk,  sharing  profit  or  loss 
as  the  case  may  be.  This  is  called  productive  co-operation. 
But  we  have  also  what  is  called  distributive  co-operation. 
Distributive  co-operation  means  co-operation  in  distribution, 
not  in  the  sense  in  which  the  word  is  used  ordinarily  in 
political  economy,  but  in  the  sense  in  which  we  might  speak 
of  a  merchant's  activity  in  distribution.  He  distributes 
wares.  Distributive  co-operation  refers  to  retail  and  whole- 
sale trade,  and  is  only  an  imperfect  form  of  co-operation. 
Purchasers  of  wares,  groceries,  dry  goods,  etc.,  combine  to- 
gether to  purchase  what  they  need,  and  thus  save  profits. 
They  form  a  stock  company,  subscribe  for  shares,  employ  a 
manager  and  clerks  who  often  do  not  even  share  in  profits, 
and  start  a  business.  Profits  are  sometimes  divided  only  on 
shares,  but  the  approved  way  is  to  pay  a  moderate  interest 
on  capital  and  to  divide  profits  between  stockholders  and 
customers  in  proportion  to  purchases,  the  division  being 
made  at  the  end  of  stated  intervals.  Some  establishments 
in  Great  Britain,  and  doubtless  elsewhere,  carry  out  the  full 
programme,  and  give  employes  a  share  of  profits.  Profits 
are  thus  said  to  be  divided  among  capital,  custom,  and  labor. 
Distributive  co-operation  has  in  England  and  Scotland 
succeeded  better  than  productive  co-operation,  which  has, 
however,  met  with  some  success.  France  appeal's  to  have 
succeeded  better  than  England  in  productive  co-operation. 
Some  instances  of  success  in  the  United  States  are  recorded, 
and  many  undertakings  have  been  partially  successful ;  by 
which  I  mean  that  they  have  succeeded  as  business  undertak- 
ings, but  have  abandoned  wholly  or  in  part  the  co-operative 
principle.  This  is  the  case  with  a  large  stove  foundry  started 
as  a  co-operative  foundry,  and  in  which  some  working-men 
or  their  heirs  still  own  stock.  One  of  the  strikers  among  the 
working-men  in  this  establishment,  in  a  difficulty  which 
arose  not  long  since,  owned  seven  thousand  dollars'  worth  of 
stock.  The  managers  seemed  to  take  it  much  to  heart  that 


238          Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 

he  should  strike,  but  it  is  hard  not  to  feel  a  certain  admi- 
ration for  him,  as  he  placed  the  union  of  his  fellow-em- 
ployes above  his  interests  as  a  capitalist.  A  good  example 
of  pure  co-operation  is  afforded  by  the  co-operative  coopers 
of  Minneapolis,  who  have  nearly  absorbed  the  business  of 
making  flour  barrels  in  that  milling  center.  The  superiority 
of  co-operation  as  a  business  principle  has  in  this  case  been 
demonstrated.  Pure  co-operation,  when  well-established, 
prevents  strikes  by  completely  identifying  the  interests  of 
labor  and  capital.  It  stimulates  energy  and  encourages 
thrift.  The  self-interest  which  usually  animates  the  em- 
ployer alone  animates  all  co-operators.  No  slighting  of 
work  can  be  tolerated,  and,  eye-service  vanishing,  much  labor 
of  supervision  is  done  away  with.  On  the  other  hand,  di- 
vided councils  often  render  the  movements  of  a  business 
clumsy,  and  action  cannot  be  so  quick  and  decisive  as  when 
one  man  acts  on  his  own  responsibility.  Failures  of  co- 
operation have  generally  been  due  to  moral  defects  on  the 
part  of  working-men.  It  has  been  difficult  for  them  to  act 
harmoniously  together,  and  prosperity  has  often  produced 
disintegration.  Wherever  co-operation  has  succeeded,  how- 
ever, it  has  produced  excellent  effects  on  character.  It  is  a 
test,  but  when  the  test  is  stood  it  reacts  beneficially  on  the 
co-operators.  It  makes  men  diligent,  frugal,  intelligent, 
considerate  of  the  rights  of  others,  as  well  as  their  own. 
Co-operation  and  temperance  go  hand  in  hand,  as  has  been 
universally  observed  by  students  of  co-operation. 

Dr.  Albert  Shaw,  associate  editor  of  the  Minneapolis 
Tribune.,  gives  this  testimony  in  regard  to  the  co-operative 
coopers  of  his  citv  :  "The  coopers  are  emphatic  in  saying 
that  the  moral  effect  of  their  co-operative  movement  con- 
stitutes its  highest  success.  It  has  unquestionably  wrought 
a  transformation  in  the  habits  of  these  craftsmen.  They  are 
no  longer  a  drunken,  disreputable  guild,  figuring  in  the 
police  courts  an  1  deserving  the  disfavor  of  the  community. 
They  have  become  a  responsible  and  respectable  class  of 
citizens." 


PROFIT-SHARING  AXD  CO-OPERATIOX.  289 

It  was  once  thought  that  corporations  could  not  succeed, 
but  the  inherent  advantages  of  corporate  industry  after  a 
long  struggle  have  made  themselves  manifest,  and  corpora- 
tions are  crushing  out  the  individual.  It  is  believed  by  some 
that  the  inherent  advantages  of  co-operation  will  sooner  or 
later  make  themselves  felt,  and  that  after  a  period  of  ad- 
versity, of  struggle,  and  of  slowly  increasing  success  co- 
operation will  finally  gain  industrial  supremacy;  thus  uniting 
harmoniously  labor  and  capital  and  ushering  in  an  era  of 
industrial  democracy. 


On  profit-sharing  read  the  work  bearing  that  title  by  Rev. 
N.  P.  Gilman.  On  co-operation  read  Co-operation  in  the 
United  States,  a  volume  published  by  the  Johns  Hopkins 
University.  A  brief  and  not  so  recent  account  of  co-opera- 
tion in  the  United  States  will  be  found  in  chapter  vii  of  the 
author's  Labor  Movement  in  America.  Those  who  read 
Gorman  will  find  most  suggestive  the  argument  for  the  ulti- 
mate triumph  of  co-operation  in  Theodor  Hertzka's  Gesetze 
der  Sozialen  Eutwickelung. 
11 


CHAPTER    V. 

SOCIALISM. 

THOSE  who  desire  industrial  democracy — not  prematurely 
but  in  its  own  time — are  many,  and  they  include  most  of  the 
best  economists.  There  are,  however,  different  ways  by  which 
it  is  proposed  to  attain  the  desired  goal.  One  of  these  ways 
is  voluntary  co-operation  for  all  competitive  pursuits,  and  gov- 
ernmental activity  for  monopolistic  undertakings.  Another 
one  of  these  ways  is  called  socialism.  Socialism  means  coer- 
cive co-operation  not  merely  for  undertakings  of  a  mon  -po- 
listic  nature,  but  for  all  productive  enterprises.  Socialists  seek 
the  establishment  of  industrial  democracy  through  the  instru- 
mentality of  the  State,  which  they  hold  to  be  the  only  way 
whereby  it  can  be  attained.  Socialism  contemplates  an  ex- 
pansion of  the  business  functions  of  government  until  all 
business  is  absorbed.  All  business  is  then  to  be  regulated 
by  the  people  in  their  organic  capacity,  each  man  and  each 
woman  having  the  same  rights  which  any  other  man  or  any 
other  woman  has.  Our  political  organization  is  to  become 
an  economic  industrial  organization,  controlled  by  universal 
suffrage.  Socialism  \vill  make  civil  service  employes  of  all 
citizens,  and  will  remunerate  them  in  such  manner  as  shall 
in  view  of  all  the  circumstances  appear  to  the  public  author- 
ities to  be  just.  Private  property  in  profit-producing  capital 
and  rent-producing  land  is  to  be  abolished,  and  private  prop- 
erty in  income  is  to  be  retained,  but  with  this  restriction: 
that  it  shall  not  be  employed  in  productive  enterprises. 
What  is  desired,  then,  is  not,  as  is  supposed  by  the  unin- 
formed, a  division  of  property,  but  a  concentration  of  prop- 
erty. The  socialists  do  not  complain  because  productive 
property  is  too  much  concentrated,  but  because  it  is  not 


SOCIALISM.  241 

sufficiently  concentrated.  Soci.ilists  consequently  rejoice  in 
the  formation  of  trusts  and  combinations,  holding  that  they 
are  a  development  in  the  right  direction. 

There  are  four  elements  in  socialism;  namely,  first,  the 
common  ownership  of  the  means  of  production  ;  second,  the 
common  management  of  these  means  of  production  ;  third, 
the  distribution  of  annual  products  of  industry  by  common 
authority  ;  fourth,  private  property  in  income.  Socialists 
make  no  war  on  capital,  strictly  speaking.  Xo  one  but  a 
fool  could  do  such  a  thing.  What  socialists  object  to  is  not 
capital  but  the  private  capitalist.  They  desire  to  nationalize 
capital  and  to  abolish  capitalists  as  a  distinct  class  by  making 
every  body,  as  a  member  of  the  community,  a  capitalist; 
that  is,  a  partial  owner  of  all  the  capital  in  the  country. 

Socialists  say  that  labor  creates  all  wealth.  Xo  rational 
socialist  means  thereby  to  deny  that  land  and  capital  are 
factors  of  production,  but  as  they  are  passive  factors  they 
hold  that  their  owners  ought  not  to  receive  a  share  of  the 
product  unless  they  personally  are  useful  members  of  the 
community.  Labor  is  the  active  factor,  and  all  production 
is  carried  on  for  the  sake  of  man.  Land  and  labor  are  sim- 
ply the  tools  of  man.  Socialists  admit  that  the  owners  of 
these  tools  must  receive  a  return  for  them  when  industry  is 
organized  as  it  is  now  ;  hence  they  desire  that  these  tools 
should  become  common  property.  They  wish  to  make  of 
universal  application  the  command  of  the  apostle  Paul:  "If 
a  man  will  not  work,  neither  let  him  eat." 

Distributive  Justice. — The  central  aim  of  socialism,  the 
pivotal  point,  is  distributive  justice.  It  proposes  to  dis- 
tribute products  justly.  The  ideas  of  socialists  are,  how- 
ever, not  harmonious  as  to  what  constitutes  justice.  Some 
say  equality  is  justice ;  others,  distribution  in  proportion 
to  real  needs,  so  that  each  may  have  the  economic  means  for 
his  completest  development.  Still  others  say  justice  moans 
distribution  in  proportion  to  merit  or  service  rendered — but 
the  service  of  the  individual,  not  of  his  ancestors.  Bequest 
and  inheritance,  except  of  articles  of  enjoyment,  like  pict- 


242  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

ures,  old  family  plate,  books,  household  furniture,  possibly 
also  the  use  of  a  house  as  a  home,  must  be  abolished.  So- 
cialism allows  no  inheritance  which  renders  labor  needless. 

It  ought  not  to  be  hard  to  picture  socialism  to  one's  self. 
Government  owns  the  post-office  ;  most  governments  own  the 
telegraph.  Nearly  all  own  the  wagon  roads.  Some  own  the 
canals  and  railways.  Many  governments  own  factories. 
Probably  every  national  government  does  at  least  a  little 
manufacturing.  Most  governments  cultivate  forests,  and 
some  cultivate  more  or  less  land.  We  have  only  to  imagine 
an  extension  of  what  already  exists  until  government  culti- 

tf  O 

rates  all  land,  manufactures  all  goods,  conducts  all  exchanges, 
and  carries  on,  in  short,  every  productive  enterprise,  and  we 
have  socialism  pure  and  simple.  It  may  be  conceived  as 
compatible  with  constitutional  monarchy  or  with  republican- 
ism. Socialism  is  compatible  with  a  centralized  government, 
but  also  and  more  naturally  with  a  decentralized  govern- 
ment. Some  functions  would  fall  to  the  minor  civil  divis- 
ions, others  to  States,  others  to  federations  of  States — even  to 
international  federations. 

"What  is  Socialistic?— Surely  not  every  public  activity. 
Properly  speaking,  that  only  can  be  considered  socialistic 
which  tends  to  an  absorption  of  all  production  by  the  govern- 
ment. Does  a  measure  tend  to  the  suppression  of  individual 
production  and  production  by  voluntary  associations  of  indi- 
viduals and  to  the  absorption  of  production  by  government  ? 
Then  it  is  socialistic;  otherwise  not.  This  is  the  only  way 
to  distinguish  between  socialistic  and  non-socialistic,  or  even 
anti-socialistic,  measures.  This  furnishes  us  with  a  rational 
basis  for  judgment.  If  we  are  socialistic  we  will  favor  social- 
istic measures,  but  if  we  are  opposed  to  socialism  we  will  at 
least  be  inclined  to  reject  socialistic  measures.  Are  compul- 
sory education  and  free  schools  socialistic?  Xo  ;  they  are 
decidedly  anti-socialistic.  They  develop  capacity  for  self- 
help,  and  enable  those  who  grow  up  under  their  influence  to 
make  the  best  of  existing  institutions.  They  are  a  conserv- 
ative force.  Are  gas-works,  electric  lighting  works,  water- 


SOCIALISM.  243 

works,  and  the  like,  owned  and  operated  by  municipalities 
socialistic  ?  No  ;  for  they  are  in  line  with  a  modern  tend- 
ency to  separate  sharply  between  the  industrial  functions 
of  private  persons  and  the  industrial  functions  of  the  polit- 
ically organized  community.  There  is  a  sound  principle  at 
the  foundation  of  this  tendency.  The  conviction  is  gradually 
being  forced  upon  us  by  science  and  actual  experience  that 
natural  monopolies  are  best  owned  and  operated  by  govern- 
ment, while  competitive  businesses  flourish  only  in  the  atmos- 
phere of  private  enterprise  and  free  competition.  If  we 
separate  thus  on  rational  principles  the  private  from  the  pub- 
lic industrial  sphere,  instead  of  letting  things  drift  in  hap- 
hazard fashion  into  chaos  we  lay  the  strongest  possible 
foundations  for  the  existing  order. 

The  Strength  of  Socialism. — Socialism  makes  per- 
haps its  strongest  claims  in  its  plea,  first,  for  a  scientific  organ- 
ization of  the  productive  forces  of  society,  and  second,  for  a 
just  distribution  of  annual  social  income.  It  is  said  that  the 
present  production  of  economic  goods  is  small  in  proportion 
to  population,  but  socialism  replies  :  "  Naturally  enough. 
Competition  is  wasteful.  Two  railways  are  built  when  one 
would  suffice.  Two  trains  run  parallel  between  two  cities 
where  one  would  serve  the  public  equally  well.  Three  times 
as  many  milk-wagons,  horses,  and  drivers  are  required  to 
serve  the  people  with  milk  as  would  suffice  if  the  milk  busi- 
ness were  organized  like  the  mail  distribution  business  in 
cities.  Look  at  the  stores,  wholesale  and  retail,  and  see 
the  waste  of  human  force.  Without  competition  the  whole 
dry  goods  and  grocery  business  could  be  carried  on  with  a 
third  of  the  present  economic  expenditure  of  force.  Reflect 
on  all  the  idle  classes  in  modern  society.  Socialism  would 
set  every  body  to  work,  and,  making  each  one  dependent  on 
his  own  exertions  for  success,  would  stimulate  all  energies." 
The  argument  is  continued  after  that  fashion,  and  it  is  tell- 
ing. It  does  not  prove  the  point  unless  we  grant  two  thing*  : 
first,  that  the  present  waste  and  idleness  cannot  be  suppressed 
or  greatly  diminished  without  a  departure  from  the  funda- 


244  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

mental  principles  of  our  present  industrial  order  ;  second, 
that  socialism  is  practicable.  Justice  is  a  strong  plea  in  the 
programme  of  socialism,  and  it  cannot  be  for  one  moment 
claimed  that  each  one's  income  is  at  present  in  proportion  to 
his  services  to  humanity.  Income  in  proportion  to  industrial 
merit  is  attractive  to  an  ethical  sentiment.  But  cannot  we 
approximate  more  nearly  to  that  than  at  present  by  social 
reform  ?  And  by  social  reform  is  meant  the  improvement 
of  existing  institutions,  but  not  their  abandonment.  No 
doubt  the  idle  man  is  morally  a  thief.  He  receives,  but 
gives  nothing  in  return.  Any  man  who  by  past  services  of 
his  own  has  not  earned  the  right  of  repose  is  a  shameless 
cumberer  of  the  earth,  unless,  indeed,  he  is  physically  or  men- 
tally incapacitated  for  useful  employment.  Would  the 
world  suffer  if  you  should  die?  That  is  the  test.  If  you 
merely  clip  coupons,  then  no  one  would  miss  you.  Others 
would  willingly  relieve  you.  But  your  service  need  not  be 
manual  toil. 

Dr.  James  Fraser,  the  late  Bishop  of  Manchester,  England, 
recognized  the  obligations  of  personal  service,  but  he  did 
not  in  consequence  favor  socialism.  He  argued  in  this 
wise  :  "Most  of  us  are  by  our  necessities  obliged  to  render 
services  to  our  fellows.  Some  of  us,  however,  have  inher- 
ited or  received  money  in  some  wray  without  a  return  on 
our  part.  We  are  placed  by  God  on  our  honor.  It  is  now 
a  matter  not  of  physical  compulsion  but  of  honor  with  us  to 
serve  our  fellows."  *  What  is  here  said  would  apply  of 
course  not  merely  to  those  who  receive  wealth  by  inherit- 
ance, but  to  those  who  become  wealthy  by  the  discovery  of 
valuable  treasures,  like  oil,  natural  gas,  gold,  minerals,  etc., 
on  or  under  soil  which  they  own,  or  by  the  mere  growth 
of  cities,  which  adds  immensely  to  the  value  of  land.  Legally 
the  wealth  is  mine,  but  morally  it  is  simply  a  new  opportu- 
nity for  me  to  help  forward  the  progress  of  humanity;  for 
ethically  I  myself  am  not  my  own. 

*  Those  arc  not  the  bishop's  exact  words.  It  has  been  many  years  since 
I  have  read  them,  but  I  have  reproduced  the  idea. 


SOCIALISM.  245 

Social  Reform. — We  may  likewise  inquire  whether  with- 
out a  departure  from  the  institution  of  private  property,  the 
laws  of  bequest  and  inheritance  may  not  be  so  changed  as  to 
bring  about  a  fairer  distribution  of  products ;  whether, 
also,  by  public  ownership  and  management  of  natural  mon- 
opolies much  of  the  waste  of  present  private  competition  may 
not  be  avoided.  These  and  a  multitude  of  other  questions 
suggest  themselves.  The  author  holds  that  social  reform  is 
likely  to  accomplish  more  valuable  results  than  socialism. 
What  is,  in  his  opinion,  needed  is  a  free  and  peaceful  evolu- 
tion of  industrial  institutions,  but  not  a  radical  departure  from 
fundamental  institutions. 

The  Weakness  of  Socialism. — It  does  not  appear  clear 
to  the  author  how  socialism  could  be  made  to  work  in  actual 
life.  The  danger  to  freedom  seems  a  very  real  one.  It  is 
frankly  admitted  that  up  to  a  certain  point  there  is  a  tend- 
ency on  the  part  of  government  to  improve  as  its  functions 
increase.  But  would  this  hold  with  the  indefinite  extension 
of  the  sphere  of  government?  Let  us  admit  that  as  our 
livelihood  would  depend  on  the  efficiency  of  government  all 
the  force  and  energy  which  now  go  into  private  service 
would  be  turned  into  public  channels.  But  what  would  hap- 
pen if,  in  spite  of  all  precautions,  some  unscrupulous  combina- 
tion should  secure  the  control  of  government  V  There  would 
be  no  standing-ground  lor  effective  opposition  outside  of  gov- 
ernment, for  dismissal  from  the  service  of  government  would 
mean  a  cessation  of  opportunity  to  gain  a  livelihood.  If  all 
production  is  to  be  carried  on  by  public  authority  there  could 
be  no  private  press  for  criticism;  and  it  is  to  be  feared  that 
nn welcome  views,  which  after  all  may  be  the  true  ones,  would 
fare  much  worse  than  at  present. 

The  domination  of  a  single  industrial  principle  is  also  dan- 
gerous to  civilization.  It  has  been  held  that  the  domination 
of  a  single  social  principle  has  led  to  the  downfall  of  older 
civilizations,  and  a  distinguished  American  *  has  expressed  the 

*  lion.  A.  IX  White,  ox-president  of  Cornell  University,  in  his  excellent 
address  entitled  The  J/V.Mcij/e  of  the  Nineteenth  Century  to  tlw  Twentieth. 


246  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

fear  that  the  private  business  principle,  with  what  naturally 
goes  with  it,  called  by  this  scholar  "  mercantilism,"  threatens 
American  civilization.  Now  what  is  wanted  is  a  co-ordina- 
tion of  the  two  principles,  the  principle  of  public  business  and 
that  of  private  business.  It  is  desirable  that  some  should 
serve  the  public  in  an  official  capacity.  Some  are  adapted  for 
that.  It  is  desirable  that  an  ample  field  should  be  left  for 
those  who  prefer  private  initiative  and  activity.  It  seems  to 
the  author  that  thus  only  will  our  civilization  be  rendered 
rich  and  full. 

Socialists. — Socialism  has  rendered  good  service  by  call- 
ing attention  to  social  problems,  by  forcing  -us  to  reflect  on 
the  condition  of  the  less  fortunate  classes,  by  quickening  our 
consciences  ;  also  by  helping  us  to  form  the  habit,  acquired 
by  fc\v  as  yet,  of  looking  at  all  questions  from  the  stand-point 
of  the  public  welfare  and  not  merely  of  individual  gain; 
finally, by  calling  our  attention  to  the  nature  of  the  industrial 

«   '        •/  ~ 

functions  of  government,  and  helping  us  to  separate  ration- 
ally the  private  industrial  sphere  from  the  public  industrial 
sphere.  Socialism  as  a  theory  of  society  cannot,  of  course,  be 
regarded  as  in  any  sense  morally  blameworthy.  It  has  been 
advocated  by  good  men  and  by  bad  men  also.  To-day  it 
numbers  earnest  Christians  and  sincere  ministers  of  the 
Gospel  among  its  adherents.  As  there  are  good  repub- 
licans and  bad  republicans,  there  are  good  socialists  and 
bad  socialists.  If  every  time  a  republican  was  guilty 
of  a  criminal  act,  all  the  newspapers  said,  "That  is  what 
comes  of  being  a  republican,"  we  might  begin  to  think  all  re- 
publicans bad  men.  It  is  a  mistake  to  suppose  that  socialists 
belong  to  the  criminal  classes.  Those  who  have  worked 
among  the  criminal  classes  and  carefully  studied  them  will 
tell  us  that  almost  no  socialists  are  found  among  them.  At 
the  same  time  it  must  be  said  that  the  socialists  have  been 
most  unfortunate  in  a  large  proportion  of  their  public  repre- 
sentatives, especially  of  their  noisiest  representatives,  who 
have  secured  the  largest  amount  of  attention.  Some  of 
them  have  been  vicious  men,  and  many  of  them  have  been 


SOCIALISM.  247 

bitter  and  vindictive.  Needless  animosity  lias  been  aroused 
and  class  hatred  nourished.  The  cause  of  progress  has  thus 
been  seriously  injured.  Furthermore,  a  number  of  questions 
having  no  connection  with  socialism  have  been,  even  by 
socialists,  associated  with  it.  Infidelity  and  free  love  may 
be  mentioned.  Of  course  these  have  nothing  to  do  with 
socialism.  Socialism  has  done  harm  on  account  of  the 
manner  in  which  it  has  been  too  frequently  presented,  and 
it  has  also  accomplished  good,  but  the  best  effects  of  social- 
ism have  been  its  indirect  and  not  its  direct  consequences. 

Anarchism. — It  remains  only  to  make  a  few  distinctions. 
Socialism  has  been  described  as  industrial  democracy  estab- 
lished and  controlled  by  government.  There  are,  however, 
those  who  hold  that  if  all  government  were  abolished  men 
would  freely  and  spontaneously  form  co-operative  groups 
which,  federated,  would  manage  all  production.  These  men 
attack  government  and  deny  the  moral  right  of  man  through 
government  to  exercise  authority  over  his  fellows.  These 
are  the  anarchists,  sometimes  called  anarchist-socialists.  The 
writer  frankly  confesses  his  inability  even  to  imagine  how 
this  kind  of  socialism  could  be  made  to  work  in  actual  life. 
Scientific  anarchy  is  something  he  cannot  picture  to  himself 
as  any  thing  more  substantial  than  a  dream.  When  socialism 
is  defined  so  as  to  include  anarchy,  we  have  two  kinds  of 
socialism — namely,  anarchy  and  collectivism  ;  collectivism 
meaning  what  has  been  called  socialism  in  this  chapter.  Col- 
lectivism is  often  used  interchangeably  with  socialism,  par- 
ticularly in  France. 

Communism  is  an  older  term  not  now  often  used.  It 
has  been  employed  in  the  past  to  designate  an  extreme  kind 
of  socialism.  Socialism  when  it  means  also  equal  distribution 
of  products  has  been  called  bv  some  communism,  and  the 
production  and  distribution  of  economic  goods  by  the  State 
was  only  then  called  socialism  when  unequal  distribution  of 
products  was  advocated.  Some  writers  h;ne  called  violent 
schemes  of  radical  soc-ial  reform  communistic,  and  reserved 
the  term  socialistic  for  the  more  conservative  plans  of 
11* 


243  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

reconstruction.  All  the  existing  communistic  societies  in  the 
United  States  are,  however,  composed  of  peace  men,  who  do 
not  believe  in  war  but  in  non-resistance.  It  is,  perhaps,  as 
well  to  abandon  the  attempt  to  make  a  distinction  between 
communism  and  socialism,  and  to  drop  the  word  communism. 


Kirkup's  Inquiry  into  Socialism  gives  the  best  presenta- 
tion of  a  very  conservative  kind  of  socialism.  Kirkup,  how- 
ever, includes  voluntary  co-operation  under  socialism,  and 
the  socialism  which  he  describes  is  not,  strictly  speaking, 
pure  socialism.  It  is  the  substitution  of  the  co-operative 
for  the  competitive  principle.  Other  works  are  mentioned 
in  Part  VIII. 

On  bequest  and  inheritance  read  Mill's  Political  Economy, 
Book  II,  chapter  ii,  and  Book  V,  chapter  ix.  Also  the 
author's  Taxation  in  American  /States  and  Cities,  Part  III, 
chapter  viii. 


CHAPTER  VI. 

MONOPOLIES. 

1.  Artificial  Monopolies. — Only  a  word  can  be  said 
about  artificial  monopolies.  Businesses  are  artificial  mono- 
polies when  they  are  made  monopolies  not  by  their  own 
inherent  properties  but  by  legislative  enactment  or  by  the 
formation  of  a  close  connection  with  natural  monopolies, 
whereby  they  are  made  to  partake  of  the  qualities  of  the 
latter.  Kings  and  queens  formerly  granted  exclusive  busi- 
ness privileges  to  favored  persons,  and  permitted  no  one  ex- 
cept those  named  to  engage  in  certain  undertakings.  These 
early  monopolies  became  so  odious  that  sovereigns  were  com- 
pelled to  abandon  their  claims  of  right  to  grant  exclusive 
economic  privileges. 

It  is  held  that  our  American  tariff  laws  create  artificial 
monopolies,  and,  while  their  influence  in  this  direction  is  un- 
doubtedly vastly  exaggerated,  it  seems  scarcely  possible  to 
deny  that  they  have  assisted  the  producers  of  a  few  articles 
to  form  domestic  combinations  for  the  suppression  of  compe- 
tition. The  remedy  suggests  itself. 

Patents. — Government  creates  exclusive  privileges  by 
copyright  and  patent,  laws,  but  this  is  done  professedly  in 
the  interest  of  the  general  public  and  not  of  any  favored 
class.  Authors  and  inventors  are  granted  exclusive  right-; 
in  their  productions  for  a  limited  period.  This  monopoly  is 
considered  a  fit  reward  for  valuable  public  services.  Copy- 
rights and  patents  have  been  objected  to  as  interferences 
Avith  natural  liberty,  but  they  appear  to  have  justified  them- 
selves in  the  stimulus  which  they  have  given  to  authorship 
and  invention.  It  must,  however,  be  remembered  that  a'l  in- 
tellectual effort  is  an  historical  product.  The  telephone,  for 


250          AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

example,  did  not  spring  from  the  mind  of  one  man,  as  Mi- 
nerva from  the  head  of  Jupiter.  The  telephone  was  precede  1 
by  a  century  of  scientific  invention  and  discovery,  most  of  it 
poorly  enough  remunerated.  The  telegraph  was,  similarly, 
the  result  of  generations  of  careful,  plodding  industry  of 
scores  of  men.  Professor  Henry,  of  Princeton  College, 
whose  services  in  connection  with  the  completion  of  the  tele- 
graph were  most  distinguished,  conscientiously  refused  to  take 
out  any  patent.  It  also  happens  that  several  persons  almost 
simultaneously  and  independently  make  the  same  discoveries 
and  inventions.  Now  if  the  man  who  makes  the  finishing 
touches  which  lead  to  utilization  of  a  long  line  of  work  alone 
is  rewarded,  it  is  like  paying  only  the  workmen  who  put  the 
roof  on  the  house.  It  is  not  generally  understood  how  seri- 
ous an  interference  with  liberty  patents  are.  A  man  who 
has  a  patent  is  allowed  to  say  to  all  the  rest  of  the  world, 
"Because  I  have  first  done  such  and  such  things,  you  must 
not  do  them.''  Yet  there  may  be  those  who  about  tlie  same 
time,  without  any  knowledge  of  him,  had  found  out  how  to  Jo 
them.  When  a  principle  existing  in  nature  is  allowed  to  be 
patented,  and  not  merely  the  application  of  the  principle,  the 
interference  with  liberty  becomes  still  stronger.  The  prac- 
tical conclusion  is  somewhat  like  this  :  Patents,  like  copy- 
rights, are  beneficial.  Experience  seems  to  warrant  this 
assertion.  Patents  <lo  not,  however,  rest  on  so  strong  a  basis 
as  copyrights,  because  no  two  persons  could  ever  write  pre- 
cisely the  same  book,  and  the  fact  that  I  have  written  a  book 
in  no  wise  keeps  you  from  writing  any  book  you  please. 
Patents  should  not  be  granted  on  light  and  trivial  grounds, 
and  the  period  for  which  they  are  granted  ought  to  be  strictly 
limited,  and  subterfuges  for  the  evasion  of  this  limitation 
ought  not  to  be  suffered  to  succeed  as  at  present.  Moreover, 
owners  of  patents  ought  to  receive  their  patents  on  conditions 
which  will  compel  them  to  use  them  or  allow  them  to  lapse; 
perhaps,  also,  to  grant  to  others  the  right  to  use  the  patent  on 
payment  of  a  reasonable  royalty.  Laws  ought  also  to  be 
changed  so  as  to  prevent  such  an  abuse  of  patents  as  we  have 


MONOPOLIES.  251 

frequently  witnessed  in  our  rural  districts,  where  farmers 
have  been  induced  to  infringe  patents  unwittingly  in  order 
that  damages  might  be  collected  from  them.  The  suggestion 
of  the  gentleman  who  is  Commissioner  of  Patents  at  the  time 
this  is  being  written,  that  the  right  of  purchase  of  a  patent 
be  reserved  by  the  United  States,  is  to  be  commended.  Our 
patents  at  the  present  time  promote  monopoly,  and  in  some 
cases  interfere  senselessly,  it  is  to  be  feared,  with  manufact- 
ures. The  patent  laws  require  to  be  simplified  and  amended 
and  their  abuses  removed.  At  the  same  time  reward  should 
in  some  way  always  be  provided  for  those  who  make  valua- 
ble inventions. 

2.  Natural  Monopolies. — Natural  monopolies  have  al- 
ready been  treated  in  other  chapters  of  this  book.  It  now 
remains  to  sum  up  and  complete  what  has  been  said  and  to 
consider  them  with  particular  reference  to  distribution. 
Natural  monopolies  are  those  businesses  which  become 
monopolies  on  account  of  their  own  inherent  properties. 
The  principal  ones  have  been  enumerated.  They  are 
wagon-roads  and  streets,  canals,  docks,  bridges  and  ferries, 
water-ways,  harbors,  light-houses,  railways,  telegraphs,  tele- 
phones, the  post-office,  electric  lighting,  water-works,  gas- 
works, street -cars  of  all  kinds. 

A  writer  of  merit  *  lias  given  the  following  characteris- 
tics of  natural  monopolies  which  will  help  the  reader  to 
understand  why  they  mint  be  monopolies: 

"  1.    What  they  supply  is  a  necessary. 

"2.  They  occupy  peculiarly  favored  spots  or  lines  of 
land. 

"  3.  The  article  or  convenience  they  supply  is  used  at  the 
place  where  and  in  connection  with  the  plant  or  machinery 
by  which  it  is  supplied. 

"4  This  article  or  convenience  can  in  general  be  largely, 
if  not  indefinitely,  increased  without  proportionate  increase 
in  plant  and  capital. 

*  Mr.  Fairer,  in  his  book  The  State  ni  it*  Halation  to  Trade,  in  i^e  '•  En- 
glish Citizen  Scries.'' 


253  A2f  INTRODUCTION  TO  POLITICAL  ECONOMY. 

"  5.  Certainty  and  harmonious  arrangement,  which  can 
only  be  maintained  by  unity,  are  paramount  considera- 
tions." 

Combination  and  Competition. — It  was  long  ago  said  by 
a  shrewd  English  engineer  that  where  combination  is  possible 
competition  is  impossible.  Combination  is  always  possible  in 
the  case  of  undertakings  which  are  natural  monopolies.  It 
is  inevitable,  for  it  is  not  only  cheaper  to  do  a  given  amount 
of  business  by  a  monopoly  than  by  two  or  more  concerns, 
but  very  much  cheaper.  If  two  gas  companies  in  a  city, 
having  each  a  capital  of  a  million  dollars,  operating  sepa- 
rately are  able  to  make  ten  per  cent,  profits,  when  combined 
they  will  make  much  more  than  ten  per  cent.,  possibly  even 
fifteen  or  twenty  per  cent.  There  is  a  force  continually  at 
work  drawing  them  together.  It  works  as  constantly  it' not 
as  uniformly  as  the  attraction  of  gravitation,  and  in  the 
discussion  of  natural  monopolies  we  can  safely  predict  con- 
solidation. That  part  of  political  economy  which  deals  with 
natural  monopolies  more  nearly  resembles  physics  or  astron- 
omy than  any  other  part  of  our  science. 

We  are  not  left  to  general  principles.  The  testimony  of 
experience  is  ample.  There  is  never  any  real  competition  in 
the  field  of  natural  monopolies.  There  is  war  to  settle  the 
terms  of  combination,  and  popular  language  which  uses  the 
word  war,  as  "  gas  war,"  "  railway  war,"  etc.,  is  scientifically 
correct.  Competition  is  a  steady,  permanent  pressure,  while 
war  is  destructive,  and  seeks  to  damage  an  enemy  in  order  to 
make  peace  advantageously.  No  doubt  it  has  been  tried 
over  a  thousand  times  to  compel  gas  companies  in  a  city  to 
compete,  but  in  the  world's  history  it  has  never  succeeded, 
and  it  never  can  succeed.  The  same  may  be  said  with  ref- 
erence to  telegraph  companies.  We  have  had,  probably, 
over  a  hundred  different  companies  in  the  United  States. 
England  has  tried  competition  over  and  over  again.  At 
present  real  competition  in  the  telegraph  business  exists  in  no 
country  in  the  world.  It  will  never  exist.  Railways  have 
in  all  European  countries  combined,  and  the  apparent  com- 


253 

petition  in  this  country  is  illusory  and  temporary.  Com- 
bination is  going  forward  with  unprecedented  rapidity. 

What  shall  be  our  policy  ?  Monopoly  is  inevitable.  Pri- 
vate monopoly  is  odious.  Public  monopoly  is  a  blessing,  and 
the  test  of  experience  approves  it.  Again  and  again  it  has 
been  tried  with  fear  and  trembling,  but  the  results  have  in 
the  long  run  been  gratifying.  Public  ownership  and  man- 
agement of  railways  have  in  Germany  succeeded  in  many 
respects  even  better  than  their  advocates  anticipated,  and  the 
opinion  of  experts  in  Germany  i'avors  them  almost  if  not 
quite  unanimously.  The  writer  happens  to  know  of  no  ex- 
ception. 

But  shall  we  at  once  try  to  substitute  public  ownership 
and  management  of  natural  monopolies  for  private  owner- 
ship and  management  in  the  United  States  ?  The  private 
interests  opposed  to  this  step,  the  apathy,  indifference,  and 
prejudice  to  be  overcome,  are  so  tremendous  that  there  is  no 
sort  of  danger  of  moving  too  rapidly  in  this  matter.  What 
the  writer  would  advocate  is  limitation  of  charters  for  natu- 
ral monopolies  and  an  extension  of  the  reserved  rights  of 
the  public  in  order  that  such  changes  as  shall  finally  be  de- 
cided to  be  beneficial  may  be  easily  and  readily  made.  The 
right  of  purchase  of  a  natural  monopoly  without  paying  any 
thing  for  the  franchise  itself,  but  only  for  value  of  capital 
actually  invested,  and  for  its  value  in  its  condition  at  time 
of  purchase,  ought  always  to  be  reserved.  Local  natural 
monopolies  ought  to  pass  into  the  hands  of  local  authorities 
as  soon  as  possible,  and  no  charters  ought  hereafter  to  be 
granted  for  private  gas,  water,  or  electric  lighting  works. 
Always  begin  reform  at  home. 

The  Advantages  Claimed.  —  The  advantages  Avhich 
it  is  claimed  that  public  ownership  and  management  will 
bring  are  many,  and  the  principal  ones  will  bo  briefly  enu- 
merated. 

1.  Increase  of  Public  Prosperity. — First,  a  diffusion  of 
their  income  among  the  community  will  take  place,  and 
this  will  tend  to  prevent  an  undue  concentration  of  wealth, 


2^4  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

while  it  will  promote  general  prosperity,  thj  ideal  of  the 
fathers  of  the  American  republic.  How  profitable  natural 
monopolies  are  may  be  seen  from  the  fact  that  they  are  the 
source  of  most  of  the  enormous  fortunes  of  our  country. 
The  income  from  them  may  be  diffused  in  two  ways  :  First, 
charges  may  be  placed  so  low  that  price  will  simply  rover 
cost.  This  is  the  method  pursued  by  our  post-office  and  by 
the  English  telegraph.  Second,  a  profit  may  be  derived 
from  these  pursuits,  and  this  used  to  lower  taxes  or  to  do 
things  of  benefit  to  the  people  as  a  whole,  as  to  improve  our 
roads  and  streets  and  all  our  schools,  to  encourage  art  and 
literature,  and  the  like.  A  middle  course  may  be  taken. 
Prices  may  be  reduced  and  a  moderate  profit  used  for  public 
purposes. 

2.  Economy. — The  second  great  advantage  claimed  is 
the  greater  economy  of  public  ownership  and  management, 
whereby  the  products  to  be  distributed  will  be  increased. 
We  may  thus  avoid  the  larger  portion  of  that  waste  of 
which  socialists  complain  without  abandoning  the  funda- 
mental principles  of  the  existing  order.  It  is  in  fact  the 
bad  management  of  natural  monopolies  which  has  given  to 
socialism  a  considerable  part  of  its  strength. 

How  enormous  the  waste  of  attempted  competition  and 
war  in  the  field  of  natural  monopolies  is  may  be  seen  on 
every  side.  The  construction  of  only  two  needless  parallel 
lines  of  railway  in  the  United  States,  the  West  Shore  and 
the  Nickel  Plate,  extending  together  from  New  York  to 
Chicago,  wasted  two  hundred  millions  of  dollars;  a  sum 
sufficient  to  build  two  hundred  thousand  homes  for  a 
million  people.  Probably  the  waste  in  railway  construc- 
tion and  operation  in  the  United  States  during  the  past 
fifty  years  would  be  amply  sufficient  to  build  comfort- 
able homes  for  every  man,  woman,  and  child  now  in  the 
country. 

Every  city  shows  that  attempted  competition  eats  up  a 
large  part  of  what  might  be  profit.  Gas  can  well  be  supplied 
for  a  profit  in  great  cities,  if  the  business  is  a  perfect  mo 


MONOPOLIES.  255 

nopoly,  for  seventy-five  cents.  English  cities  supply  it  for 
less.  The  city  of  Wheeling  supplies  gas  for  ninety  cents  a 
thousand  and  makes  money.  The  Baltimore  gas  company 
charges  one  dollar  twenty-five  cents  a  thousand — the  price 
fixed  by  the  Legislature — and  apparently  is  not  earning  a 
great  deal  of  money  for  the  stockholders.  What  is  the 
reason?  Simply  this:  that  the  present  is  a  combination  of 
half  a  dozen  or  more  companies  which  have  built  works, 
dug  up  the  streets,  put  gas-mains  in  them,  and  run  pipes 
into  the  houses  and  the  like.  An  enormous  sum  of  money, 
millions  of  dollars,  has  been  wasted,  and  this  waste  is  repre- 
sented by  bonds  on  which  interest  must  be  paid,  as  well  as 
by  an  enormously  inflated  capitalization.  The  capital  has 
simply  been  wasted.  No  one  has  received  the  benefit,  but 
the  people  of  Baltimore  have  suffered  the  loss,  inconvenience, 
and  damage  of  uselessly  torn  up  streets.  The  experience  of 
Baltimore  is  that  of  nearly  all  American  cities. 

Municipal  ownership  and  management  of  natural  monopo- 
lies is  every-where  in  Europe  being  substituted  for  private 
ownership,  and  there  the  question  may  be  regarded  as  prac- 
tically settled  by  the  test  of  experience.  Public  opinion  in- 
creasingly favors  public  enterprise  in  the  United  States, 
and  several  cities  are  in. iking  moves  which  will  sooner  or 
later  result  in  an  increased  number  of  municipal  undertak- 
ings in  our  countrv. 

When  services  of  a  monopolistic  nature  are  performed  by 
the  public,  water,  gas.  and  electric  lighting  services  can  all 
be  combined,  and  great  economies  secured.  A  better  man- 
agement is  the  result.  It  is  onlv  a  popular  superstition 
that  private  enterprise  is  superior  to  public  enterprise. 
Each  is  superior  in  its  own  field.  The  author  has  received 
returns  from  about  twenty  American  citie*  owning  and 
operating  electric  lighting  plants,  and  finds  that  the  average 
net  cost  per  night  is  under  fourteen  cents  per  light  of  t  \vo  thou- 
sand candle-power,  while  seventy  five  private  companies  in 
different  cities  examined  charge  on  an  average  over  forty- 
two  cents  for  the  same  service — or  over  three  times  as  much. 


256        AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

This  superiority  of  public  enterprise  is  not  exceptional. 
The  writer  has  had  lor  three  years  some  considerable'  ex- 
perience in  the  use  of  post-office  and  express  companies, 
and  has  yet  to  find  one  instance  in  which  when  a  mail  and 
express  package  were  sent  at  the  same  time  from  the  same 
place  to  the  same  destination  the  express  package  reached 
its  destination  as  soon  as  the  mail.  Any  one  may  try  the 
experiment  for  himself.  He  has  also  found  the  post  office 
incomparably  more  obliging  and  desirous  of  doing  all  that 
he  asked.  It  seems  to  make  little  difference  how  mail  is 
addressed.  If  any  sort  of  clue  is  given  it  reaches  its  ad- 
dress. American  telegraph  service  is  also  inferior  to  foreign, 
and  in  its  efforts  to  accommodate  the  ordinary  citizen  in- 
ferior to  our  post-office.  In  other  countries  telegrams  can 
be  sent  for  as  low  as  nine  cents  for  ten  words,  and  in  En- 
gland we  have  one  uniform  charge  of  twelve  cents  for  twelve 
words.  We  must  pay  as  high  as  one  dollar  for  ten  words  in 
the  United  States.  Of  course,  distance  is  a  small  matter. 
Nothing  is  actually  carried.  The  post-office  actually  carries 
things,  and  yet,  notwithstanding  our  long  distances,  no  coun- 
try carries  letters  for  lower  charges  than  the  United  States. 

Nor  is  it  true  that  private  enterprise  takes  the  initiative 
in  improvements.  English  municipalities  have  gone  ahead 
of  private  gas-works  in  improvements.  The  English  tele- 
graph is  introducing  improvements  which  our  American  tele- 
graphs are  strenuously  resisting.  The  burial  of  wires  in 
cities  is  only  one  of  these  improvements.  The  American 
post-office  went  ahead  of  American  express  companies  in 
developing  the  money-order  business.  A  private  savings 
bank  in  Baltimore  follows  the  lead  of  the  English  postal 
savings  bank  in  the  establishment  of  branches  and  the  use 
of  stamps  pasted  on  cards  until  a  minimum  sum  for  deposit 
is  reached.  Government  has  gone  ahead  of  private  corpo- 
ration in  publicity  of  financial  accounts,  and  has  shown 
many  of  the  pecuniary  advantages  of  publicity. 

3.  Purification  of  Politics. — The  third  great  advan- 
tage of  the  public  principle  for  natural  monopolies  is  the 


MONOPOLIES.  257 

purification  of  politics.  Private  monopolies  must  be  con- 
trolled by  public  authority,  and  control  means  interference 
with  private  business,  and  this  begets  corruption.  Wherever 
electric  lighting  is  supplied  by  a  private  corporation  the 
stock  is  distributed  "  where  it  will  do  the  most  good,"  among 
influential  citizens,  newspaper  proprietors,  and  politicians, 
and  we  have  a  powerful  factor  arrayed  against  good  govern- 
ment. This  is  why  American  citizens  pay  such  large  sums 
for  the  services  rendered  by  corporations,  and  one  reason 
why  the  government  of  American  cities  is  so  expensive. 
When,  however,  we  have  public  ownership  and  management 
of  natural  monopolies  public  interests  and  private  interests 
are  identified,  and  the  best  citizens  are  on  the  side  of  good 
government.  Those  who  take  pains  can  observe  evidences 
of  this  on  every  hand.  Mayors,  where  electric  lighting  is 
done  by  the  municipality,  will  testify  to  the  good  political 
efiects.  We  have  here  the  suggestion  of  the  true  way  to 
reform  our  civil  service.  It  is  idle  to  say,  "  Wait  until  our 
civil  service  is  better,  and  then  we  will  introduce  the  prin- 
ciple of  public  ownership  and  management  of  natural  monop- 
olies." The  industrial  reform  must  precede,  for  that 
alone  can  open  the  door  to  thorough-going  reform  of  our 
administration. 

The  reforms  advocated  will  give  talent  a  career  in  the 
service  of  the  State,  and  private  business  will  absorb  only  its 
legitimate  share  of  the  talent  of  the  country.  The  danger 
of  mercantilism  will  thus  be  counteracted. 

4.  Will  Overthrow  Artificial  Monopolies.  —  The 
fourth  advantage  claimed  is  that  the  discrimination  between 
public  and  private  business  here  advocated  will  prevent  the 
existence  of  many  artificial  monopolies  which  are  oppressive. 
Certain  business  men  have  been  favored  by  those  in  control 
of  natural  monopolies,  as,  for  example,  in  lower  freight  rates, 
and  have  built  up  artificial  monopolies.  The  just  and  equal 
treatment  of  all  citi/ens  by  all  natural  monopolies  would 
help  to  give  all  a  fair  chance,  and  would  confine  the  concen- 
tration of  business  to  its  legitimate  limits. 


258  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

The  principles  underlying  natural  monopolies  deserve  to 
be  carefully  studied,  and  it  is  suggested  that  they  afford 
good  opportunity  for  the  exercise  of  whatever  faculty  one 
may  possess  or  may  acquire  for  the  observation  of  industrial 
phenomena.  • 


See  Ely's  Problems  of  To-day,  chapters  xvii-xxxi. 


CHAPTER  VII. 

A   FEW    ADDITIONAL   REMARKS   ON   SOCIAL    PROBLEMS   AND 
REMEDIES  FOR  SOCIAL  EVILS. 

THERE  are  many  social  problems,  and  they  are  by  no 
means  entirely  economic  in  their  nature.  They  all,  however, 
have  their  economic  side,  and  the  province  of  the  economist 
is  to  look  at  them  from  the  economic  stand-point.  When 
we  discuss  distribution  we  treat  social  problems  not  merely 
from  the  economic  stand-point,  but  from  the  point  of  view  of 
distribution,  recognizing,  however,  that  they  pertain  as  well 
to  production. 

The  most  prominent  of  the  present  social  problems  which 
are  chiefly  economic  have  already  been  mentioned  and  dis- 
cussed with  more  or  less  fullness.  It  now  only  remains  to 
say  a  few  additional  words  about  these  and  to  call  attention 
to  one  or  two  other  social  problems  not  yet  mentioned  di- 
rectly; also  to  make  some  remarks  on  remedies  for  social 
troubles. 

Child  Labor  is  one  of  the  most  serious  evils  of  our  day,  and 
it  is  increasing  with  alarming  rapidity  in  the  United  States, 
growing  far  more  rapidly  than  population.  It  is  one  of  those 
things  which  never  regulate  themselves,  but  which,  unregu- 
lated, as  all  experience  shows,  tjo  from  bad  to  worse.  Only 
laws  with  severe  penalties  for  disobedience  and  special  fac- 
tory inspectors  for  their  enforcement  can  lessen  this  evil. 
With  these  laws  must  be  coupled  compulsory  education,  with 
adequate  provision  for  its  enforcement  by  means  of  truant 
officers  and  the  provision  of  truant  schools.  It  is  thus  that 
Massachusetts,  the  banner  State  of  the  Union  in  this  as  in  all 
legislation  touching  the  laboring  classes,  has  greatly  lessened 
the  evil  of  child  labor.  No  one  under  fourteen  should  be  al- 


280  AX  IXTROD  UCTION  TO  POLITIC  A  L  ECONOMY. 

lowed  to  work  in  factories  ;  from  fourteen  to  seventeen,  after- 
noon and  evening  continuation-schools  should  be  furnished 
with  compulsory  attendance  for  a  minimum  number  of  hours; 
and  from  fourteen  to  eighteen,  for  moral  and  physiological 
reasons,  the  hours  of  labor  should  be  limited  to  a  maximum 
of  ten  on  every  day  except  Saturday,  when  young  persons 
should  not  be  allowed  to  work  after  one  o'clock  in  Che  after- 
noon. This  regulation  ought  likewise  to  apply  to  married 
women  in  order  to  guard  the  interests  of  the  home.  The 
labor  of  women  is  increasing  frightfully  in  factories,  far  more 
rapidly  than  the  growth  of  population  or  the  labor  of  men. 
Women  ought  to  be  surrounded  with  every  safeguard  for 
health,  every  provision  for  decency  and  comfort  ought  to  be 
provided,  machinery  should  be  fenced  in,  employers  rendered 
liable  for  accident,  hours  of  labor  ought  to  be  strictly  limited 
on  physiological  principles,  especially  until  maturity  ;  work 
for  a  period  prescribed  by  physiology  and  hygiene,  in  the  in- 
terests not  merely  of  mothers  but  of  the  rising  gent- ration, 
ought  to  be  entirely  prohibited  before  and  after  confinement; 
finally,  work  under  ground,  and  other  places  dangerous  to 
morality  ought  to  be  abolished.  We  Americans  have  lagged 
far  behind  Europeans  in  all  these  matters. 

Involuntary  Idleness  is  a  serious  social  trouble.  It  ap- 
pears that  wage-earners  are  idle  about  a  tenth  of  the  working- 
days  in  the  year  on  an  average,  and  some  of  them  for  several 
months  each  year.  Only  a  small  part  of  this  idleness  is  due 
to  strikes  and  lockouts,  only  about  one  per  cent,  in  Massachu- 
setts. Leisure  forced  upon  one  does  only  harm.  It  leads  to 
the  formation  of  vicious  habits,  including  drunkenness  and 
vagabondage.  As  much  work  would  be  accomplished  if 
wage-earners  labored  nine  hours  a  day  regularly,  even  if  no 
increased  efficiency  were  the  result,  and  as  increased  efficiency 
is  the  result  of  shorter  hours  it  is  altogether  probable  that 
eight  hours  a  day  of  regular  work  would  produce  as  much 
as  ten  or  eleven  hours  now  with  our  periods  of  idleness.  It 
may  be  a  difficult  problem  to  know  how  to  effect  the  desired 
end,  but  certainly  it  would  be  a  blessing  to  our  entire  social 


SOCIAL  PROBLE.\fS  AVD  SOCIAL  EVILS.  261 

life  if  work  could  be  distributed  regularly  throughout  the 
days  of  the  year,  with  a  few  holidays,  and  a  short  vacation, 
but  no  idleness. 

Intemperance  has  already  been  discu-sed.  It  is  cause 
and  effect  of  industrial  conditions,  but  not  merely  of  indus- 
trial conditions,  nor  even  of  social  conditions.  It  is  undoubt- 
edly an  individual  matter,  and  appeals  to  individuals  are  in 
place  ;  but  the  influence  of  social  conditions  cannot  safely 
be  left  out  of  consideration. 

Pauperism,  springs  from  social  causes  already  mentioned 
as  well  as  from  individual  causes,  and  the  remedy  must  come 
both  through  improved  industrial  and  social  relations  and 
individual  reformation.  We  are  beginning  to  hear  of  a  sci- 
ence of  charity;  and  it  is  sorely  needed,  for  old-fashioned 
alms-giving  is  a  curse. 

The  Family  is  to  be  kept  in  view  as  the  true  social  unit 
in  all  economic  discussions,  and  divorce  is  one  of  the  most 
serious  evils  connected  with  the  family  institution.  The 
causes  for  divorces  have  been  shown  by  the  National  De- 
partment of  Labor  at  Washington  to  be  largely  economic. 
It  is  the  pressure  of  economic  wants  in  the  lower  middle 
class  which  is  most  fruitful  of  divorce. 

Corporations  have  been  already  treated,  and  trusts  have 
been  alluded  to.  In  general  the  writer  opposes  interference 
with  combinations  of  labor  and  of  capital.  It  has  been 
productive  of  harm  in  the  past.  Whenever  any  pursuit  is 
such  that  in  that  business  combinations  of  labor  and  capital 
are  dangerous,  the  legitimate  conclusion  is  that  it  is  not  tit  for 
private  enterprise  at  all,  but  is  suitable  only  for  public  man- 
agement. 

Remedies  in  General. — The  most  general  remark  in  re- 
gard to  remedies  for  social  troubles  is  that  there  should  be 
no  needless  interference  of  public  authority  with  private 
business.  This  is  the  true  source  of  corruption.  If  exten- 
sive interference  is  an  inevitable  part  of  any  private  busi- 
ness it  is  a  sure  sign  that  it  should  be  made  a  public  business. 

Interference  in  behalf  of  labor  is  inevitable,  but  it  should 


262  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

be  chiefly  confined  to  the  protection  of  women  and  children 
and  to  those  who  are  naturally  unable  to  help  themselves. 
The  general  aim  should  be  to  educate  both  the  bodies  and 
the  minds  of  the  rising  generation  so  thoroughly  as  to  re- 
duce the  need  of  interference  to  a  minimum. 

Prevention  is  always  better  than  cure.  The  constant  aim 
of  public  authority  and  private  effort  should  be  to  anticipate 
troubles  and  prevent  their  existence.  It  is  a  monstrous  doc- 
trine that  the  State  can  employ  its  functions  and  use  public 
money  freely  to  repress  crimes,  but  may  not  spend  a  cent  to 
prevent  their  existence.  Some  would  have  us  think  that  the 
city  of  Chicago,  for  example,  is  warranted  in  spending  hun- 
dreds of  thousands  of  dollars,  or  even  millions  if  necessary, 
to  hunt  down  and  hang  anarchists,  but  not  any  money  at  all 
to  provide  play -grounds  for  children,  breathing-places  for 
adults,  to  improve  the  sanitary  arrangements  of  the  city,  to 
provide  wholesome  recreation,  and  in  general  to  remove,  as 
far  as  in  its  power,  all  legitimate  causes  for  discontent.  It  is 
not  necessary  to  show  the  fallacy  of  this.  Laws  ought  not 
to  be  merely  mandatory  and  repressive.  Legislation  should 
hold  out,  so  far  as  practicable,  inducements  for  right  conduct. 
It  ought  to  strive,  to  an  ever-increasing  extent,  to  "  attract "  to 
right  action,  or  to  become,  as  it  is  technically  called,  attract- 
ive and  positive. 

Popular  Suffrage. —  Preparation  for  duties  and  privi- 
leges of  life  is  a  public  and  a  private  function,  but  the 
abolition  of  duties  and  privileges  is  exactly  the  wrong 
thing.  Those  who  look  at  social  problems  from  the  stand- 
point of  the  few  will  desire  among  us,  for  example,  to  abol- 
ish universal  suffrage  and  to  restrict  suffrage,  while  those 
who  have  at  heart  the  welfare  of  the  masses  will  be  more 
inclined  to  say:  "  Rather  prepare  every  person  in  America 
for  the  duties  of  citizenship.  See  to  it  that  every  American 
child  is  compelled  to  attend  school  at  least  six  full  years, 
and  is  taught  some  useful  occupation.  Diffuse  in  every  way 
a  knowledge  of  the  duties  and  privileges  of  an  American 
citizen,  and  not  until  that  has  been  faithfully  tried  let  us 


SOCIAL  PROBLEMS  AND  SOCIAL  EVILS.  263 

think  of  a  restricted  suffrage.  Do  not  take  the  suffrage 
I'rom  illiterates,  but  abolish  illiteracy;  and  experience  has 
shown  that  this  is  feasible." 

It  is  seen  that  there  is  no  one  remedy  for  social  evils.  A 
multitude  of  agencies  for  good  must  work  together.  Private 
individuals  and  private  associations  of  individuals  must 
supply  a  multitude  of  these.  Religion  must  furnish  men 
with  a  motive  power  impelling  them  to  see  and  do  the 
right.  Public  authority  must  likewise  do  what  it  can  for 
humanity.  Men  come  forward  from  time  to  time  with  some 
one  remedy,  a  panacea  for  all  social  evils,  but  they  are  dis- 
trusted, and  the  author  thinks  justly  so.  These  reformers 
with  one  idea  often  have  valuable  contributions  to  our 
knowledge  to  offer  but  they  exaggerate  the  importance  of 
their  one  idea. 

This  part  of  our  treatise  cannot  be  better  closed  than  by 
the  following  suggestive  words  from  the  last  chapter  of 
Professor  de  Laveleye's  Primitive  Property:  "There  must 
be  for  human  affairs  an  order  which  is  the  best.  That  order 
is  by  no  means  always  the  existing  one,  else  why  should  we 
all  desire  change  in  the  latter  ?  Hut  it  is  the  order  which 
ought  to  exist  for  the  greatest  happiness  of  the  human  race. 
God  knows  it  and  desires  its  adoption.  It  is  for  man  to  dis- 
cover and  establish  it." 


PART  V. 

CONSUMPTION. 


CONSUMPTION. 

WHEN  the  economist  comes  to  treat  of  consumption  he  does 
not  approach  an  entirely  new  set  of  economic  phenomena, 
but  he  rather  changes  his  stand-point.  The  same  familiar 
topics  occur  under  consumption  which  have  already  met  us, 
but  the  point  of  view  is  a  different  one.  Consumption  and 
production  are  correlates.  Consumption  is  the  end  of  pro- 
duction, and  production  cannot  exceed  consumption.  Pro- 
duction can  merely  anticipate  consumption.  Consumption 
is  the  motive  power  of  production,  and  production  goes 
forward  satisfactorily  only  when  there  is  a  reasonable  pros- 
pect of  consumption  for  the  producer.  The  toiler  must  see 
before  him  as  a  goal  the  consumption  or  the  control  of  the 
consumption  of  at  least  a  considerable  portion  of  the  fruits 
of  his  exertions.  Arthur  Young,  as  often  quoted,  said: 
"The  magic  of  property  turns  sand  into  gold."  The  dis- 
tinguished traveler  had  in  mind  peasant  proprietorship,  and 
consumption  undoubtedly  throws  light  on  the  nature  and 
utility  of  private  property.  It  is  not,  however,  necessary 
that  the  cultivator  or  improver  either  of  rural  or  urban  land 
should  enjoy  the  right  of  property  in  it  to  induce  him  to 
exert  himself.  Knglisli  tenant  farmers  are  among  the  best 
in  the  world,  and  men  diligently  improve  real  estate  in 
American  cities  which  they  do  not  own.  It  is  a  prerequisite 
of  a  wide  diffusion  of  economic  energy  that  the  fruits  of 
the  toil  of  one  who  conducts  an  enterprise  should  accrue  to 
him,  and  that  these  fruits  should  increase  in  some  kind  of 
proportion  to  augmented  diligence  and  efficiency.  Rack- 
rents,  which  take  all  save  enough  to  sustain  life  from  either 
the  rural  or  the  urban  tenant,  oppression  of  government, 


268          AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

like  the  Turkish,  which  systematically  robs  the  producers, 
and  exactions  of  those  railway  and  other  corporations  which 
are  at  the  same  time  powerful  and  unscrupulous — all  these 
and  other  similar  agencies  which  discourage  the  producers 
are  destructive.  They  take  away  from  men  the  goal  of 
consumption,  which  spurs  them  on. 

Difficulties  in  Treating  Consumption. — Consumption 
must  be  treated  very  briefly.  Only  a  few  main  points  can 
be  touched  upon.  This  part  of  political  economy  has  not 
yet  been  sufficiently  worked  out  for  satisfactory  treatment 
at  length  in  an  elementary  work  like  the  present.  There  are 
several  reasons  why  this  part  of  political  economy  is  in  a 
particularly  backward  condition.  First,  one  may  connect  it 
with  a  general  tendency  to  forget  the  end  of  life  in  our  zeal 
to  discover  the  means  of  it.  Many  a  writer  discourses  about 
production  as  if  it  were  in  itself  the  end,  and  as  if  consump- 
tion were  a  misfortune  to  be  reduced  to  its  lowest  terms. 
Second,  consumption  is  in  many  respects  more  difficult  to 
treat.  Its  laws  are  less  readily  discoverable.  Production 
takes  place  often  in  the  light  of  day.  It  is  frequently  con- 
centrated in  large  establishments  visible  to  all,  and  this  is 
the  case  to  an  ever-increasing  extent.  A  considerable  pro- 
portion of  consumption,  on  the  other  hand,  is  us  widely 
diffused  as  the  homes  and  dwellings  of  individuals  and 
families.  It  is  more  or  less  covered  up;  in  some  cases  even 
secret.  Consumption  now  resembles  in  many  of  its  as- 
pects the  old  household  production  of  economic  goods 
in  the  days  which  preceded  the  science  of  political  economy. 
Third,  political  economy  deals  with  social  relations,  and  it 
must  be  confessed  that  the  social  element  is  more  universally 
prominent  in  the  production  of  goods  than  in  their  con- 
sumption. 

Consumption  Defined.— As  man  creates  no  new  mat- 
ter, but  onlv  utilities,  so  he  destroys  no  matter,  but  only 
utilities.  Consumption  means  the  destruction  of  a  utility. 
Now,  destruction  of  a  utility  is  of  two  kinds;  it  may  be  sim- 
ply the  destruction  of  a  concrete  utility,  or,  more  accurately, 


CONSUMPTION.  269 

the  utility  of  a  single  concrete  economic  good,  but  a  destruc- 
tion without  loss.  The  utility  may  pass  over  into  some  per- 
son or  thing.  We  may  also  witness  the  destruction  not 
merely  of  the  utility  of  a  particular  tiling  but  of  the  utility 
itself.  This  is  the  case  when  nothing  is  left  to  take  the  place 
of  the  utility  destroyed.  If  we  speak  of  the  first  kind  of 
consumption  as  the  destruction  of  mere  concrete  utility,  we 
may  call  this  second  kind  of  consumption  the  destruction  of 
pure  abstract  utility. 

Consumption  is  one  part  of  the  productive  processes. 
Commodities  are  destroyed.  Their  utility  is  destroyed,  and 
they  are  no  longer  economic  goods.  Coal  and  lumber  serve 
as  illustrations.  The  utility  of  the  coal  and  the  lumber  in 
their  original  form  departs.  A  ton  of  coal  is  burned  up  and 
a  log  of  wood  is  used  up.  The  coal  is  gone  and  the  log  no 
longer  remains;  but  all  the  utility  in  them  has  passed  over 
into  something  else,  and  that  with  an  increase  of  utility  if 
the  production  in  which  the  coal  and  the  log  of  wood  were 
employed  has  been  successful.  Things  change  their  form  in 
consumption  as  in  production,  but  utilities  may  remain  and 
grow.  The  utility  does  not  necessarily  pass  over  into  a  ma- 
terial thing.  It  may  pass  over  into  a  person;  and  this  is  the 
kind  of  consumption  which  in  general  yields  largest  results. 
When  consumption  is  attended  with  increase  of  utility  we 
call  it  productive  consumption.  When  we  speak  of  the  con- 
sumption of  economic  goods  by  persons  we  call  every  useful 
consumption  of  a  useful  member  of  society  productive,  and 
every  useless  consumption  of  economic  goods,  as  the  use  of 
mere  luxuries  even  by  a  useful  member  of  society,  as  unpro- 
ductive, and  every  consumption  of  whatever  sort  by  a  use- 
less member  of  society  is  unproductive.  Such  a  person  is  a 
mere  cumberer  of  the  ground.  His  consumption  is  mere 
waste,  and  he  does  not  deserve  to  live. 

Consumption  and  Capital-Formation. — When  con- 
sumption leaves  permanent  results  it  is  saving.  Saving  is 
but  one  form  of  consumption.  Let  us  say  a  fanner  raises 
tine  hundred  bushels  of  potatoes,  and  with  his  family  eats 


270  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

fifty,  while  he  exchanges  the  other  fifty  for  the  services  of 
persons  who  produce  luxuries  for  his  table,  at  once  also  eaten. 
When  the  fifty  bushels  are  eaten  by  the  family  and  the  other 
fifty  bushels  by  persons  who  produce  luxuries  for  the  family, 
no  permanent  result  is  left.  Now  let  us  suppose  that  instead 
of  using  the  fifty  bushels  to  feed  laborers  who  are  growing 
luxuries  for  him,  he  uses  the  fifty  bushels  to  construct  a 
needed  fence  on  the  farm.  The  potatoes  have  all  been 
equally  consumed  in  both  cases,  but  in  the  latter  case  we  say 
the  farmer  has  saved  fifty  bushels  of  potatoes;  by  which  we 
mean  that  he  has  employed  them  so  that  a  relatively  perma- 
nent result  of  their  consumption  remains.  The  fifty  bushels 
of  potatoes  have  been  eaten,  but,  as  the  farmer  says,  he  "has 
something  to  show"  for  the  consumption.  Let  us  take 
another  illustration.  A.  and  B.  have  each  an  income  in  one 
year  of  one  hundred  thousand  dollars  beyond  what  they  need 
to  support  themselves.  A.  spends  his  hundred  thousand  dol- 
lars in  giving  a  series  of  magnificent  entertainments,  and 
thoughtless  people  say  he  is  a  man  to  be  praised  because  he 
gives  employment  to  labor.  B.  spends  his  hundred  thousand 
dollars  in  constructing  a  factory.  His  acquaintances  may  not 
know  what  he  is  doing  with  his  income,  and  call  him  a  bad 
citizen,  who  gives  no  employment  but  "  locks  up  his  money," 
by  which  seems  to  be  meant  one  who  keeps  from  consump- 
tion commodities  over  which  he  has  control.  B.  has,  how- 
ever, consumed  or  directed  the  consumption  of  as  large  a 
quantity  of  economic  goods  as  A.,  and  has  something  left  to 
show  for  it.  After  he  has  given  employment  during  the 
year  to  the  men  who  have  constructed  his  factory,  he  con- 
tinues to  give  a  number  of  men  employment  and  opportunity 
for  consumption  indefinitely,  while  A.'s  consumption  has 
ceased  once  for  all.  It  may  be  said  that  all  truly  unproduct- 
ive consumption  is  immoral. 

It  is  to  be  noticed  that  governments  are  more  or  less 
prominent  in  capital-formation.  When  our  federal  govern- 
ment pays  off  the  national  debt  it  forms  capital.  The  means 
to  pay  the  debt  are  collected  in  small  sums  from  millions  of 


CONSUMPTION.  271 

people  who  would  not  have  used  them  for  purposes  of  pro- 
duction, and  then  the  aggregate  is  handed  over  to  the  holder 
of  a  written  obligation,  a  bond,  who  uses  them  as  capital. 
These  means  in  the  pockets  of  the  people  were  not  capital, 
and  only  a  small  proportion  would  have  been  turned  into  c.ip- 
ital.  There  can  be  no  doubt  that  debt-payment  by  the 
United  States  has  increased  the  actual  capital  of  the  coun- 
try. A  part  of  this  new  capital,  it  is  true,  simply  restored 
capital  that  had  once  existed  and  had  been  sacrificed  years 
before.  Similarly,  when  the  United  States  expends  its  rev- 
enues for  post-office  and  other  federal  buildings,  and  for  wise 
internal  improvements,  it  increases  capital.  It  is  a  consump- 
tion which  is  at  the  same  time  a  capital-formation.  When 
municipalities  establish  gas-works,  electric  lighting  works, 
and  pay  for  them  by  taxes  or  by  loans  repaid  by  taxation, 
the  capital  of  the  country  is  increased.  The  people  save  a 
portion  of  their  income  through  the  agency  of  government, 
and  it  is  the  only  way  a  large  proportion  of  them,  can  ever 
be  made  to  save  any  thing. 

We  have  capital-formation  from  the  consumption  of 
economic  goods  for  the  production  of  external  material 
things,  but  we  have  what  we  may  call  personal  capital- 
formation  from  the  consumption  of  things  by  persons  who 
are  acquiring  economic  skill  and  aptitudes. 

It  must  not  be  supposed  that  all  saving  is  useful.  Capital 
formed  is  frequently  employed  destructively.  This  is  the 
case  with  capital  which  is  used  to  make  an  attack  on  existing 
capital.  Capital  which  is  saved  to  build  parallel  lines  of 
railway  or  rival  g:is-works  like  those  which  have  afflicted  the 
people  of  Baltimore  is  destructive.  All  these  economic  goods, 
so  far  as  the  general  public  is  concerned,  might  have  been  far 
butler  consumed  in  pure  enjoyment. 

Alleged  Present  Consumption  of  Future  Products. 
—We  often  hc-ar  of  consumption  in  advance  of  production. 
It  is  said  people  live  on  the  future.  It  is  frequently  argued 
that  during  our  late  war  we  were  consuming  faster  than  we 
we're  producing.  It  is  alleged  that  the  federal  bonds  repre- 
12* 


272  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

sented  the  consumption  of  future  earnings.  Those  who  talk 
thus  appear  to  have  no  clear  notions.  It  is  impossible  to 
consume  faster  than  we  produce  unless  \ve  consume  past  sav- 
ings. We  cannot  eat  to-day  the  wheat  or  potatoes  of  to- 
morrow, nor  can  we  wear  coats  before  they  are  made. 
What  is  alleged  can  only  be  true  in  case  the  capital  of  the 
country  is  diminishing,  whereas  during  our  late  civil  war  it 
increased.  What  really  happened  was  this  :  We  as  a  nation 
became  indebted  to  some  extent  to  foreigners,  and  within  the 
nation  some  of  us  gained  while  the  rest  of  us  were  losing. 
Bonds  do  not  represent  a  present  consumption  of  future 
wealth,  but  a  consumption  of  existing  wealth  for  which  a 
government  agrees  to  remunerate  its  owners  in  the  future.  If 
war  can  be  carried  on  with  the  aid  of  bonds  it  can — leaving  out 
of  consideration  what  foreigners  send  us — with  a  sufficiently 
perfect  taxing  machinery,  conceivably  always  and  practically 
sometimes,  be  carried  on  without  bonds.  It  is  only  a  question 
of  how  to  get  hold  of  existing  wealth.  War  was  formerly 
carried  on  without  bonds,  because  they  are  a  comparatively 
recent  contrivance. 

Prodigality  and  Avarice. — Luxury,  which  falls  under 
the  head  of  prodigality,  has  already  been  classed  under  mo- 
tives of  economic  activity.  It  is  now  necessary  to  add  a  few 
further  remarks  to  what  has  already  been  written  in  order 
to  look  at  the  subject  from  our  new  stand-point. 

"  When  a  king  makes  great  outlays  he  gives  alms,"  was 
the  moral  justification  which  Louis  XIV.  of  France  offered 
for  royal  extravagance,  and  even  so  really  great  a  writer  as 
Montesquieu  said,  "  When  the  rich  diminish  their  expendi- 
tures the  poor  die  of  hunger."  It  is  to  be  hoped  that  the 
fallacy  of  these  utterances  is  readily  apparent  to  all  who  have 
carefully  read  what  precedes.  First,  when  we  save  we  also 
consume  and  we  give  employment,  and  we  give  more  em- 
ployment when  we  make  wise  investments  in  productive 
enterprises,  sometimes  even  a  hundred  times  as  much.  Second, 
the  possession  of  resources  simply  means  control  over  labor 
and  capital.  AVe  can  direct  them  whither  we  will.  AVe  may 


CONSUMPTION.  273 

give  them  such  direction  that  we  ourselves  will  enjoy  their 
products  or  that  others  will  receive  this  enjoyment,  as  when 
we  spend  it  for  the  benefit  of  humanity. 

It  is  said  that  prodigality  does  no  harm  if  money  is  spent 
at  home.  Those  who  talk  this  way  have  not  grasped  the  A, 
B,  C  of  political  economy.  It  is  not  the  money  with  which 
we  are  concerned.  Money  is  only  a  small  part  of  our  wealth. 
It  is  merely  "  small  change  "  in  great  industrial  centers,  and 
it  is  conceivable  that  circumstances  may  exist  under  which 
it  would  be  the  best  thing  for  us  to  have  money  leave  the 
country.  If  prices  with  us  are  abnormally  high,  foreigners 
cannot  purchase  our  commodities,  and  our  export  trade  will 
decline.  What  we  have  to  consider  in  the  case  of  prodigality 
is  the  destruction  of  materials  and  the  labor  which  has  been 
used  up  once  for  all,  whereas  both  materials  and  labor  ought 
to  have  been  wisely  employed.  The  one  who  has  control 
over  them  is  guilty  of  wasted  opportunity. 

If  luxury  is  a  good  thing  for  the  people,  how  does  it  hap- 
pen that  the  masses  in  Oriental  countries  are  so  deplorably 
poor,  whereas  the  few  indulge  in  the  most  wanton  luxury? 
Or  how  explain  the  growing  poverty  of  Rome  under  the  em- 
perors while  luxury  was  continually  increasing  until  it  became 
the  most  outrageous  in  history?  Pearls  were  dissolved  in 
wine  to  inake  it  expensive,  and  tongues  of  birds  which  had 
been  taught  to  talk  were  served  at  dinner  because  they  were 
costly.  Waste  is  waste,  and  no  sophistry  can  make  it  any 
thing  else.  If  a  large  proportion  of  labor  and  capital  are 
employed  in  the  production  of  luxuries,  precisely  so  much 
less  is  left  for  the  production  of  the  necessities,  comforts, 
and  conveniences  of  life. 

We  must  in  the  discussion  of  luxury  as  elsewhere  distin- 
guish between  "  the  seen  and  the  unseen,"  the  unseen  mean- 
ing simply  what  is  not  readily  seen.  The  writer  is  acquainted 
with  a  university  town  where  the  "scale  of  living,"  as  it  is 
called,  the  general  style  of  life,  is  set  by  university  professors 
who  are  rich,  and  to  whom  their  salaries  are  only  one  source 
ainow  others  of  income.  Doubtless  tradesmen  and  thought- 


274  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

less  spectators  praise  the  expensiveness  of  living,  and  say, 
"  It  makes  trade  good."  That  is  "  the  seen."  The  "  unseen  " 
is  the  pain  which  it  causes  to  other  professors  and  instructors 
who  must  live  only  on  their  salaries;  especially  the  pain  to 
their  wives.  For  them  it  is  a  continual  harassing  struggle 
which  detracts  from  their  usefulness  and  dignity.  As  for  the 
rich  professors,  it  is  quite  possible  for  them  to  live  plainly, 
for  them  to  set  an  example  of  "  plain  living  and  high  think- 
ing," and  still  spend  all  their  incomes.  Certainly  no  one  is 
fit  to  hold  a  college  professorship  who  does  not  see  many 
ways  in  which  all  his  own  resources,  however  large,  could  be 
advantageously  expended  in  advancing  the  interests  of  hu- 
manity in  connection  with  the  work  of  his  own  institution. 

It  has  been  said  that  luxury  is  a  reserve  fund ;  that  in 
times  of  general  distress  we  have  something  with  which  to 
dispense.  There  is  some  truth  in  this,  but  it  is  quite  clear 
that  widely  diffused  comfort,  with  a  plentiful  supply  of  sav- 
ing institutions  well  patronized,  is  a  better  reserve  fund. 
After  the  late  Franco-German  war  it  was  the  frugal,  thrifty 
classes  who  lived  simply  that  astonished  the  world  with 
their  reserve  fund.  When  France  called  for  billions  of 
francs,  peasants,  artisans,  mechanics,  and  careful  fathers  of 
families  came  forward  with  their  hard-earned  savings  and 
subscribed  for  more  bonds  than  were  offered. 

At  the  same  time  it  is  true  that  if  all  should  restrict  them- 
selves to  the  bare  necessities  of  life  a  great  portion  of  exist- 
ing capital  and  labor  would  be  unemployed.  It  is  possible 
in  every  civilized  land  to  produce  more  than  the  bare  neces- 
sities for  all.  It  has  only  been  said  that  luxuries  are  not  nec- 
essary to  give  employment.  Many  costly  tilings  are  desir- 
able. Magnificent  art  galleries,  grand  universities,  splendid 
public  schools  of  every  grade,  fine  architecture,  especially  in 
public  buildings  and  churches,  extensive  pleasure-grounds 
and  play-grounds  for  the  people  in  every  city,  and  even  in 
every  town  and  village,  all  these  are  among  those  things  on 
which  unlimited  capital  and  labor  can  be  expended.  These 
things,  involving  large  outlays,  ought  to  be  public  institu- 


CONSUMPTION.  275 

tions.  It  is  the  extensive  use  which  justifies  the  great  ex- 
penditures. It  has  been  characteristic  of  periods  of  national 
decay  that  private  persons  have  indulged  in  expensive 
luxuries  while  public  institutions  have  fallen  into  decay. 
It  is  said  that  in  the  time  of  Pericles,  the  days  of  the  glory 
of  Athenian  democracy,  one  third  of  the  revenues  of 
the  State  were  expended  in  plastic  and  architectural  art, 
while  in  the  time  of  Demosthenes  complaint  is  made  of  the 
shabbiness  of  public  buildings. 

Avarice  is  injurious,  though  probably  less  dangerous,  be- 
cause less  seductive,  than  prodigality.  The  avaricious  man 
sacrifices  the  end  of  life  to  the  means  and  compels  others  to 
do  so.  He  may  increase  the  wealth  of  the  country,  but  he 
allows  no  one  to  enjoy  it  fully,  and  fails  to  put  it  to  the 
best  use. 

Expenditures  are  justifiable  which  tend  to  the  develop- 
ment of  our  faculties.  The  requirements  of  ethics  are  that 
we  should  develop  ourselves  and  help  to  perfect  the  rest  of 
humanity.  If  we  neglect  our  own  highest  development 
humanity  suffers.  When  we  weigh  in  the  balance  our  own 
needs  and  those  of  others  we  should  have  this  in  mind.  Wo 
should  also  strive  to  render  ourselves  independent,  so  that 
we  may  not  become  a  burden  to  others.  Our  generosity  is 
ill-advised  if  it  results  in  our  own  impoverishment,  and  may 
produce  more  harm  than  good. 

Ethics  requires  self-sacrifice.  Self-sacrifice  degenerated 
becomes  asceticism.  Asceticism  is  self-denial  for  its  own 
sake  and  not  for  others.  It  is  like  the  perversion  of  charity. 
Charity  in  one  of  its  forms,  alms-giving,  was  in  the  best 
days  exercised  for  the  sake  of  the  needy,  but  when  the 
Church  became  degenerate  it  was  exercised  for  the  sake  of 
the  giver,  and  became  thoughtless,  inconsiderate  giving,  and 
a  curse  to  the  world. 

We  should  cultivate  inexclusive  pleasures  rather  than  ex- 
clusive pleasures.  A  picture  is  an  inexclusive  pleasure. 
Thousands  may  enjoy  it.  Costly  wines  are  exclusive  pleas- 
ures. 


276  AV  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Combination  for  use  of  tilings  consumed  increases  their 
utility.  A  public  library  or  a  public  art  gallery  serves  as  an 
illustration.  Combinations  for  use  of  means  of  communica- 
tion and  transportation  make  railway  service  cheap.  Com- 
binations for  cooking  and  serving  food  have  been  proposed, 
and  co-operative  kitchens  may  yet  spare  overworked  mothers 
much  toil  and  help  to  develop  the  home-life  of  the  masses  in 
great  cities. 

"Wasteful  Consumption. — We  must  first  notice  that 
that  is  often  called  a  waste  which  is  really  a  productive  con- 
sumption. If  nothing  is  left  to  show  for  what  is  consumed, 
we  must  call  it  a  waste.  If  the  consumption  of  an  article 
like  tea,  however,  really  promotes  domesticity,  and  cheers 
and  soothes  the  mind,  if  it  adds  to  the  comfort  of  life  of 
those  who  have  few  pleasures,  it  is  by  no  means  a  waste. 
Something  is  left  to  show  for  it.  Expenditures  for  recrea- 
tion, for  wholesome  entertainments,  for  whatever  promotes 
domesticity  and  sociability,  are  among  the  most  productive. 

It  does,  however,  often  happen  that  nothing  is  left  to 
show  for  consumption,  and  then  it  is  unproductive  con- 
sumption; a  destruction  of  concrete  and  abstract  utility;  a 
waste. 

livery  change  of  fashion  involves  waste,  a  partial  destruc- 
tion of  values  created.  The  Society  of  Friends,  usually 
called  Quakers,  in  resisting  changes  of  fashion,  pursues  the 
only  course  which  can  be  justified  ethically. 

Fires  are  wasteful,  and  any  effort  to  diminish  their  fre- 
quency or  to  extinguish  them  expeditiously  deserves  the 
heartiest  commendation. 

Nature  is  continually  engaged  in  wasteful  consumption  of 
economic  cjoods,  and  man  is  obliged  to  wage  a  continual 
warfare  with  her.  This  waste  goes  on  all  the  time,  but  the 
most  important  economic,  waste  is  caused  by  the  death  of 
man,  the  chief  agent  in  production. 

The  use  of  liquors  and  tobacco,  which,  when  the  totality 
of  their  results  is  computed,  leave  less  than  nothing  positive 
to  show  for  themselves,  is  a  waste  already  treated. 


CONSUMPTION.  277 

Unwise  consumption  is  a  partial  waste,  and  the  American 
people  is  guiltier  than  any  other  civilized  nation  in  this 
respect.  We  have  in  the  West  and  North  come  to  consume 
wheat  almost  alone  for  bread,  and  neglect  corn  and  rye,  and 
often  the  sole  reason  is  that  wheat  is  more  expensive.  Even 
with  our  wheat  bread  we  use  flour  so  finely  bolted  that  our 
bread  tastes  like  wooden  chips  to  a  man  with  a  normal  taste, 
and  it  is  difficult  in  small  towns  to  purchase  flour  from 
which  the  best  elements  have  not  been  removed.  We  use 
only  few  kinds  of  vegetables  in  our  rural  districts  and  too 
often  only  few  in  the  cities.  We  use  insufficient  variety 
of  meats,  and  reject  some  of  the  best  parts  of  meat-animals 
in  large  sections  of  the  country.  Professor  Patten  has 
shown  that  this  renders  food  needlessly  expensive.  The 
variety  of  soils  is  great,  and  some  kinds  are  suited  for  cer- 
tain food  products,  others  for  a  different  kind,  still  others 
for  a  third  kind,  and  so  on  indefinitely.  When  we  use 
varied  foods  each  soil  can  be  put  to  the  best  use,  but  when 
we  demand  principally  one  or  two  kinds  of  food  we  will 
find  these  kinds  grown  on  land  not  adapted  for  them,  as 
wheat  on  land  suitable  for  maize  or  barley. 

Consumers  and  Producers  not  Two  Distinct 
Classes. — Consumers  and  producers  are  the  same  people, 
drones  excepted.  Producers  want  consumers,  but  they  only 
want  those  who  have  something  to  give  in  exchange.  If 
they  merely  want  to  part  with  their  things  they  can  find 
beggars  in  abundance  to  relieve  them.  Now  something  to 
give  in  exchange  means  production,  and  production  increases 
demand  for  commodities.  It  is  a  mistake  to  look  at  economic 
life  exclusively  from  the  stand-point  of  either  producers  or 
consumers.  The  free-traders  have  been  too  inclined  to  con- 
sider consumers  alone,  the  protectionists  producers  alone; 
and  thus  a  tendency  to  one-sidedncss  has  been  fostered.  At 
the  same  time  it  must  be  frankly  acknowledged  that  there 
is  more  danger  to  be  feared  from  an  exclusive  consideration 
of  producers,  because  there  are  so  many  kinds  of  produc- 
tion and  their  interests  are  so  diverse.  There  is  not  the 


278  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

same  diversity  of  interests  among  men  regarded  as  con- 
sumers. Nevertheless  both  extremes  ought  zealously  to  be 
avoided. 

Crises. — We  come  again  to  the  topic  of  crises  in 
industrial  life.  Crises  are  attended  with  a  glut  in  the 
market,  and  it  is  said  that  they  are  caused  by  over- 
production. A  French  economist,  M.  Jean-Baptiste  Say, 
however,  has  developed  what  is  called  a  theory  of  tlie 
market,  which  has  quite  generally  been  accepted  by 
economists.  It  is  that  there  is  no  such  thing  as  over- 
production, and  never  can  be  until  all  wants  are  sat- 
isfied. He  says  that  the  remedy  for  apparent  overproduc- 
tion is  more  production.  Men  bring  commodities  to  the 
market.  What  do  they  desire?  Not  money,  says  Say,  but 
commodities,  money  being  a  mere  medium  of  exchange. 
Now  we  have  already  seen  that  a  consumer  is  a  producer. 
If  there  is  a  deficiency  of  consumers  it  must  be  because 
those  who  would  like  to  consume  have  not  produced  eco- 
nomic goods  for  exchange.  Overproduction,  so  called,  is 
really  underproduction,  according  to  this  theory.  There  is 
a  large  measure  of  truth  in  this  theory.  When  are  we  most 
troubled  with  a  glut  in  the  market?  Undoubtedly  when 
least  is  produced.  When  is  there  the  most  ready  sale  for 
commodities?  Undoubtedly  when  everybody  is  at  work, 
or  when  most  is  being  produced. 

There  is,  however,  another  side  to  the  question.  It  is 
quite  possible  to  produce  a  larger  quantity  of  some  com- 
modities, as  potatoes,  cotton,  cloth,  etc.,  than  people  need. 
More  railways  are  often  produced  than  the  people  need  at 
the  time.  The  effect  of  disproportionate  production  is 
this  :  Some  commodities  cannot  be  exchanged.  Those 
who  have  produced  them  do  not  make  their  normal  pur- 
chases. There  is  a  falling  off  in  sales  of  some  other  com- 
modities, and  among  those  engaged  in  producing  these  other 
wares  some  cease  to  produce.  Demand  again  falls  off,  and 
still  others  cease  to  work,  as  already  explained.  There  is 
disproportionate  production  and  overproduction  of  some 


CONSUMPTION.  279 

things,  and  finally  general  overproduction,  owing  to  under- 
consumption, due  in  turn  to  lack  of  purchasing  power. 

The  intervention  of  money  is  an  important  factor.  Un- 
doubtedly commodities  are  in  the  end  exchanged  for  com- 
modities, but  the  intervention  of  a  medium  of  exchange 
produces  weighty  consequences.  Commodities  are  in  the 
h'rst  instance  exchanged  for  money,  and  all  liabilities  must 
be  met  in  money.  Houses,  lands,  etc.,  can  only  indirectly 
pay  debts,  and  at  times  cannot  rescue  one  from  bankruptcy. 
Changes  in  money-supply,  especially  a  contraction  of  the 
volume  of  money,  will  render  it  impossible  for  producers  to 
meet  their  engagements  ;  production  will  begin  to  diminish, 
demand  will  begin  to  decrease,  and  the  result  is  apparent 
general  overproduction. 

Remedies  for  overproduction  or  underconsumption,  as 
one  will,  are  many.  Whatever  improves  industrial  society 
in  any  respect  is  a  partial  remedy.  It  is  especially  desirable, 
however,  to  bring  producer  and  consumer  as  near  together 
as  possible,  because  it  often  happens  that  mutually  desired 
products  cannot,  as  a  matter  of  fact,  be  exchanged.  Ob- 
structions to  trade  should  be  reduced  to  a  minimum  where 
they  cannot  altogether  be  removed.  It  may  in  this  connec- 
tion be  mentioned  that  toll-roads  are  among  the  worst  of 
obstructions  to  free  exchanges,  and  are  an  anachronism 
which  no  enlightened  community  should  tolerate. 

Control  of  Consumption. — Sumptuary  laws  have  existed 
in  the  past,  and  have  attempted  to  control  consumption,  in  par- 
ticular, to  prevent  extravagance.  Sumptuary  laws  are  now 
generally  considered  as  antiquated,  but  it  can  scarcely  be 
doubted  that  in  the  past,  in  a  time  different  from  ours,  they 
have  done  good.  Historical  institutions  generally  have  had 
good  grounds  for  their  existence,  which  they  do  not  have  when 
they  outlive  the  period  for  which  they  were  suitable.  As  a 
rule  sumptuary  laws  are  not  adapted  to  modern  times. 

The  temperance  agitation  is  designed  to  control  consump- 
tion of  one  kind,  and,  whatever  may  bethought  of  particular 
measures,  it  is  on  the  whole  an  excellent  thing.  It  has  arisen 


280  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

out  of  the  needs  of  the  time.  It  does  not  diminish  consump- 
tion as  a  whole,  but  only  one  kind  of  consumption.  We 
have  in  Europe  and  America  numerous  remarkable  instances 
of  an  increased  general  consumption  following  a  decreased 
consumption  of  intoxicating  beverages,  showing  that  capital 
and  labor  have  found  more  abundant  opportunities  than  be- 
fore for  profitable  employment. 

Ohio  and  Massachusetts  have  attempted  a  partial  control 
of  the  consumption  of  tobacco  by  making  it  a  punishable 
oft'ense  to  sell  cigarettes  to  boys,  and  if  any  way  to  enforce 
the  law  can  be  found  their  example  is  worthy  of  imitation. 

The  control  of  consumption  is  so  difficult  that  it  must  be 
left  for  the  most  part  to  voluntary  agencies,  like  the  Church, 
and  associations  formed  for  this  and  other  purposes.  Rulers 
and  leaders  of  society  can  do  much  by  a  praiseworthy  example 
of  simplicity  and  frugality.  The  sovereigns  of  Prussia,  the 
House  of  Hohenzollern,  deserve  commendation  for  their  exam- 
ple,which  has  helped  to  make  Germany  powerful, while  French 
sovereigns  have  helped  to  degrade  France  by  extravagance. 
The  alleged  growing  extravagance  at  our  own  federal  capital, 
Washington,  is  to  be  deprecated  as  a  national  calamity. 

Curiously  enough,  one  of  the  worst  kinds  of  extravagance 
in  the  past,  as  in  the  present,  is  connected  with  funerals. 
This  evil  has  become  so  great  with  us  that  a  society  has 
been  formed  expressly  to  correct  extravagance  at  funerals, 
and  the  Bishop  of  the  Episcopal  Church  for  the  diocese  of 
New  York,  Dr.  Potter,  has  become  its  president. 

Insurance  is  a  control  of  certain  kinds  of  consumption. 
Fire  insurance,  insurance  against  hail,  against  accidents,  etc., 
is  a  contrivance  whereby  individual  losses  are  distributed 
among  many,  and  the  burden  to  any  one  reduced.  It  is  a 
fine  example  of  solidarity  of  the  right  sort.  Life  insurance 
is  somewhat  similar,  although  it  is  in  some  of  its  aspects 
more  like  accumulation  by  saving  a  part  of  one's  income. 
Savings  banks,  building  associations,  mutual  aid  societies, 
and  the  like,  help  us  to  control  consumption  and  to  dis- 
tribute it  advantageously. 


CONSUMPTION. 


281 


Analysis  of  Consumption. — An  analysis  of  the  con- 
sumption of  individuals,  families,  and  societies  is  most  in- 
structive. An  analysis  of  the  expenditures  of  a  family  is 
called  a  family  budget.  Dr.  Eduard  Kngel,  the  former 
distinguished  head  of  the  Prussian  Statistical  Bureau,  has 
advanced  the  theory  that  it  might  be  possible  by  a  care- 
ful study  of  a  sufficient  number  of  family  budgets  for 
a  period  of  years  to  construct  a  sort  of  social  signal 
service.  His  idea  is  that  changes  in  total  expenditure  and 
in  expenditures  for  various  items  in  a  sufficient  number  of 
typical  families  could  enable  us  to  predict  the  coming  of 
industrial  storms.  The  theory  has  not,  so  far  as  the  writer 
is  aware,  ever  been  fully  worked  out,  but  the  thought  is 
suggestive. 

The  following  tables  copied  from  the  Report  of  the  Massa- 
chusetts Bureau  of  Statistics  of  Labor  for  1885  are  worthy  of 
careful  examination  : 


ENGEL'S  LAW.- PRUSSIA. 


PERCENTAGE  OF  THE  EXPEXDITUKE  OF  THE 

FAMILY  OF 

•~  .i  =  3 

i  f  -5 

5  3 

^?5? 

xi-5 

c  ~> 

ITEMS  OF  EXPENDITURE. 

c's  3 

ilri  i 

c  ?"= 

~  o 

—   r,   O 

0  _iJ-3   .,  = 

5  3  ~S. 

=  •*• 

C--    ~    =  0 

f.  r-  - 

O        •>> 

~  s 

*=«> 

=  53=3 

*'* 

iii 

PIT  cent. 

Percent.           Per  e 

ent. 

1    Subsistence       

62.0") 

55  0  I 

50.0  1 

2    Clothin"-  

.'?.  Loih'in"-   

10  0   }•  ^;)-° 

]•>  (|  )*M.O 

1  '  II 

)•  S.).0 

4    Firin"  and  Li<rhtin"'                .        .  .  .  .i     5.0  1 

-  ,1  1                  -  (1 

5.  Kdtication.  Public  Worship,  etc  i      'J.O  ] 

3.S  |                  -..r,  1 

(>.  Legal  Protection.  I  o  ! 

'-'  "  I  jo  ft       ''  ° 

7.  Care  of  Health  

1   0   >~  U 

^  15.0 

8.  Comfort,  mental  and  bodily  recreation'      1.0  J 

1.5  j              ;.5 

Total 11)0.0 


*  These  fipr'iros  foot  up  uino  instrad  of  ten.     They  are  given  as  found  in 
the  report  of  the  Massachusetts  IUiry:iii. 


282 


AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 


"  The  foregoing  table  demonstrates  the  points  upon  the 
strength  of  which  Dr.  Engel  propounds  an  economic  law. 

"The  distinct  propositions  are  : 

"  First.  That  the  greater  the  income,  the  smaller  the  rela- 
tive percentage  of  outlay  for  subsistence. 

"  Second.  That  the  percentage  of  outlay  for  clothing  is 
approximately  the  same,  whatever  the  income. 

"  Third.  That  the  percentage  of  the  outlay  for  lodging  or 
rent,  and  for  fuel  and  light,  is  invariably  the  same,  whatever 
the  income. 

"  Fourth.  That  as  the  income  increases  in  amount  the  per- 
centage of  outlay  for  sundries  becomes  greater." 

MASSACHUSETTS.— PERCENTAGES  OF  EXPENDITURES.— AMOUNT,  *754  42. 


ITEMS  OF  EXPENDITURE. 

Mass.  Budgets, 
1SS3. 

Engel's  Prussian 
Law. 

M.iss.  Bureau 
Table,  1876. 

A  verage. 

Subsistence  

49.28 

50.00 

RG  00 

51  76 

Clothing  

15.95 

18.00 

15.00 

16  32 

Rout  

19.74 

12.00 

17.00 

16  25 

Fuel  

4.30 

5.00 

6.00 

5  10 

Sundry  expenses.  .  . 

10.7,'i 

15.00 

6.00 

10.57 

Totals  

100.00 

100.00 

100.00 

100.00 

COMPARATIVE  PERCENTAGES  OF  EXPENDITURES  RY  THE  FAMILIES  OF 
WORKING-MEN  IN  ILLINOIS,  MASSACHUSETTS,  GREAT  BRITAIN,  AND 
PRUSSIA. 


ITEMS. 


Subsistence.  . . 

Clothing 

Kent 

Fuel 

Sundries 


Totals.  . 


Illinois. 

Massachusetts. 

Great  Britain. 

Prussia.* 

Averapo. 

41.38 

49.28 

51.36 

55.00 

49.25 

21.00 

15.95 

18.12 

18.00 

18.27 

17.42 

19.74               1348 

12.00 

15.G6 

5.6.1 

4.::o             :!.5o 

5.00 

4.61 

14.57 

10.7:1          1:5.54 

10.00              12.21 

100.00 

100.00              100.00 

100.00              100.00 

Those  tables  will  help  us  to  understand  the  social  troubles 
of  our  time.     Thev  show  that  the  amount  which  working-men 


*  It  is  to  be  noted  that  for  Prussia  a  family  of  tho  intermediate  class  is 
taken. 


CONSUMPTION.  283 

have  for  all  the  higher  wants  and  for  health  and  recreation 
is  still  extremely  small.  Civilization  develops  the  higher 
wants,  but  the  improvements  of  the  distributive  processes  of 
industrial  society  have  not  kept  pace  with  the  development 
of  these  wants. 


Professor  Patten's  Essay  on  Consumption  in  Science  Eco- 
nomic Discussion,  his  Premises  of  Political  Economy,  and 
his  monographs  Stability  of  Prices  and  The  Consumption  of 
Wealth.  Reseller's  Political  Economy,  English  translation, 
Book  IV.  J.  B.  Say's  Political  Economy,  American  edition, 
Book  I,  chapter  xv,  On  the  -Demand  or  Market  for  Commod- 
ities. Temperance  tracts  and  publications,  including  The 
Voice,  of  New  York,  and  The  Union  Signal,  the  organ  of  the 
National  Woman's  Christian  Temperance  Union,  of  Chicago. 


PART  VI. 

PUBLIC    FINANCE. 


CHAPTER  I. 

INTRODUCTORY. 

EARLIER  economic  treatises  had  no  (special  part  devoted  to 
finance,  but  usually  included  a  few  more  or  less  valuable 
observations  on  taxation  under  some  more  general  head,  as 
"  functions  of  government,"  or  "  consumption."  When  it 
was  included  under  consumption  it  was  implied  that  gov- 
ernment consumed  but  did  not  produce,  and  such  a  sage  re- 
mark as  this  embodied  the  economic  wisdom  of  many  a  text- 
book :  "  That  tax  is  best  which  is  least  in  amount !  "  The 
development  of  economic  science  has  in  recent  years  been  so 
rapid  that  now  arguments  against  any  discussion  of  finance 
in  an  elementary  treatise  are  likely  to  take  this  shape  : 
"  The  subject  of  finance  is  so  truly  immense,  and  its  peculiar- 
ities are  so  many  and  so  far-reaching  in  their  character,  that 
it  is  better  to  make  a  separate  science  of  it,  at  least  a  sepa- 
rate volume  of  a  larger  whole,  and  not  to  enter  upon  topics 
which  cannot  adequately  be  presented  in  short  space."  It 
is  true  that  the  difficulties  of  one  who  would  say  any  thing 
about  finance  in  ten  or  a  dozen  pages  are  not  a  light  matter; 
yet  it  does  not  seem  scientifically  satisfactory  to  pass  over 
one  of  the  most  important  parts  of  political  economy  with- 
out a  word.  It  is  not,  indeed,  necessary.  An  impression 
of  the  nature  and  scope  of  finance  may  be  presented  to  the 
reader  without  any  attempt  to  enter  into  details,  which  would 
be  simply  confusing,  and  even  misleading,  in  so  short  a 
space. 

"What  is  Public  Finance  ? — It  is  often  defined  as  the 
science  which  deals  with  the  acquisition  of  the  public  reve- 
nues, with  their  management  and  their  expenditure.     If  we 
13 


288  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

regard  it  not  as  a  science  by  itself  we  should  substitute  part 
of  p  litical  economy  for  science.  It  is  that  part  of  political 
economy,  etc. 

We  often,  and  perhaps  generally,  say  simply  finance,  in- 
stead of  public  finance,  but  as  private  finance  and  private 
financiering  are  used,  public  finance  may  properly  be  employed 
as  more  explicit.  The  use  of  the  word  here  given  is  that 
which  corresponds  to  the  same  word  in  the  languages  of  the 
Continent  of  Europe,  and  is  that  which  is  found  in  the  most 
careful  English  authors.  Curiously  enough,  a  careless  em- 
ployment of  finance  has  become  too  common,  which  renders 
it  equivalent  to  a  discussion  of  money  and  banking.  We 
thus  have  popular  works  which  profess  to  treat  of  finance  and 
yet  say  nothing  about  it.  Money  and  banking  belong  to  an- 
other part  of  political  economy. 

Significance  of  Finance. — The  business  of  government 
is  the  largest  business  in  any  great  modern  nation.  A  man 
died  a  few  years  ago  who  left  to  his  family  two  hundred  mill- 
ions of  dollars,  and  his  fortune  was  spoken  of  as  colossal. 
Some  time  since  the  annual  revenues  of  our  various  govern- 
ments in  the  United  States,  federal,  State,  and  local,  were  over 
three  times  that  amount,  and  the  author's  investigations  lead 
him  to  believe  that  they  are  now  quite  four  times  as  much,  or 
at  least  eight  hundred  millions  of  dollars.  The  capitaliza- 
tion of  the  Western  Union  Telegraph,  eighty  millions  or 
more,  is  considered  enormous,  but  the  surplus  revenue  of  the 
United  States  government  above  necessary  expenditures 
for  a  single  year  would  more  than  purchase  all  the  tele- 
graph lines  in  the  United  States,  even  at  their  inflated 
valuation. 

The  Sub-Treasury  System. — The  business  of  govern- 
ment is  so  large  and  so  penetrating  in  its  character  that  it 
affects  vitally  every  other  business  in  the  country.  If  our 
governments  received  a  large  surplus  in  money  every  year  and 
kept  it  from  circulation  \ve  would  shortly  have  a  stringency 
in  the  money  market  which  would  produce  a  terrible  panic. 
It  is,  in  fact,  this,  among  other  things,  which  renders  our 


INTROD  UCTOR  Y.  289 

surplus  federal  revenue  so  difficult  a  problem.  The  United 
States  alone  among  nations  locks  up  its  money.  This  is  a 
feature  of  what  is  called  our  independent  or  sub-treasury  sys- 
tem. The  federal  revenues  flow  into  these  sub-treasuries  and 
can  only  get  out  in  payment  of  claims  on  the  United  States, 
whereas  other  governments  have  some  kind  of  connection 
with  banks,  perhaps  national  banks,  and  do  not  take  out 
of  circulation  the  money  received.  It  has  become  necessary 
in  the  past  to  pay  interest  on  the  federal  debt,  the  bonds, 
before  it  was  due,  in  order  to  restore  the  money  to  circula- 
tion, and  at  the  present  time  bonds  are  purchased  at  a  pre- 
mium before  they  are  due  in  order  to  put  the  money  in  cir- 
culation. 

Government  Business. — We  have  another  range  of 
considerations  connected  with  the  financial  affairs  of  gov- 
ernment. Government  is  the  largest  employer  of  labor  in 
the  country,  and  all  other  employers  and  all  employes  are 
more  or  less  affected  by  the  manner  in  which  it  treats  its 
employes.  Shall  government  as  employer  be  influenced  by 
the  demands  of  ethics  ?  Undoubtedly  ;  as  government  is  an 
ethical  person,  government  ought  to  be  the  model  employer, 
insisting  upon  justice  in  service  and  granting  justice  in  con- 
ditions of  service  and  in  its  remuneration. 

Government  Expenditures. — The  importance  of  finance 
becomes  even  more  apparent  when  we  become  familiar  with  the 
magnitude  of  the  revenues  and  expenditures  of  governments 
i;i  modern  times.  The  fact  is  often  cited  that  the  ex- 
penditures of  England  from  lt>85  to  1841  increased  forty 
times  while  the  population  trebled  ;  but  this  is  only  one  of 
hundreds  of  facts,  all  equally  striking,  and  this  increased  ex- 
penditure is  equally  found  in  everv  modern  nation.  The 
French  budget,  as  the  detailed  statement  of  revenues  and  ex- 
penditures is  called,  exceeded  one  thousand  millions  of  francs 
in  1828,  for  the  tirst  time,  and  there  was  general  alarm  on 
account  of  the  large  expenditures  ;  but  since  that  time 
no  budget  has  called  for  smaller  expenditures,  while  in 
I860  thev  amounted  to  two  thousand  millions  of  francs,  and 


290 


Ay  INTRODUCTION  TO  POLITICAL  ECONOMY. 


since  then  they  have  never  been  less  than  that  sum.  In  1877 
they  were  over  two  thousand  six  hundred  millions,  and,  add- 
ing local  expenditures,  over  three  thousand  millions;  as  large 
an  aggregate  as  the  expenses  of  the  people  of  the  United 
States.  The  expenditures  of  Great  Britain  decreased  after 
the  Napoleonic  Avars  on  account  of  cessation  of  war  expen- 
ditures, which  are  abnormal  ;  but  we  notice  a  steady  ten- 
dency to  increase  since  1833,  as  indicated  by  these  statistics: 
1833,  £48,786,047;  1843,  £55,360,511;  1859,  £64,805,872; 
1S74,  £73,211,815,  and  including  payment  for  Alabama 
award,  £76,328,040;  1875,  £74,328,040;  1880,  £84,105,754 ; 
1885,  £89,092,883;  1886,  £92,223,844;  1887,  £89,996,752; 
1888,  £87,423,645. 

The  local  expenditures  of  Great  Britain,  as  of  all  other 
countries,  have  been  increasing  more  rapidly  than  national 
expenditures.  This  table  shows  the  increase  in  the  federal 
expenditures  of  the  United  States: 


Tears. 

Civil  establishment. 

Total     expenditures 
less  interest  on  the 
debt 

Net    ordinary     total 
expenditure  includ- 
ing Interest,  but  not 
bond  purchases. 

1828  
1844  

$.'{,670,053 
5  645  184 

$13.296,041 
20  650  108 

$16,394,842 
2  9  483  560 

1860  

27  977,978 

GO  05G  754 

63  200  875 

1887  

85  264  825 

220  190  G03 

267  932  180 

The  following  table  shows  increase  in  expenditures  of 
federal  government  from  1796  to  1887,  and  increase  in  ex- 
penditures of  fourteen  States  of  1796  during  the  same  period, 
and  an  increase  in  expenditures  of  all  our  States: 

1796.  1887. 

Expenditure  for  civil  government  in  States  named.  $1,000,000  $65.000,000 

Federal  expenditure 5,790,651  267,932,180 

Expenditvire  of  all  the  States 1,000,000  101,534,523 

The  State  taxes  of  Ohio  increased  forty-six  times  from 
182G  to  JHHO,  and  the  taxes  for  local  purposes  over  a  hundred 
times.  The  local  taxes  of  New  York  increased  fourteen  times 
between  1827  and  18S7. 


INTRODUCTORY.  291 

These  increased  expenditures  are  riot  due  to  dishonesty. 
Probably  on  the  whole  administration  of  government  has 
improved  rather  than  deteriorated  during  the  present  cent- 
ury, and  where  government  is  most  undoubtedly  honest  we 
find  larger  increase  than  in  many  other  places.  The  ad- 
ministration of  American  cities  is  inefficient  and  too  often 
corrupt,  but  the  administration  of  English  and  German 
cities  is  unquestionably  pure,  and  that  of  German  cities,  con- 
ducted by  men  trained  for  this  work,  is  skillful.  Yet  the  ex- 
penditures of  these  cities  appear  to  have  increased  as  rapidly, 
and  in  many  instances,  in  Germany  at  least,  more  rapidly, 
than  those  of  American  cities.  We  are  dealing  with  world- 

O 

wide  phenomena.  The  explanation  is  easy,  and  proves  what 
has  already  been  stated  in  this  book:  that  while  government 
activity  is  wiser  than  previously  it  was  never  before  so  ex- 
tensive and  important.  The  functions  of  government  are 
measured  in  a  rough  sort  of  way  by  expenditures  of  gov- 
ernment, and  after  we  have  made  due  ullowaiu-e  lor  depre- 
ciations of  money  and  other  counteracting  forces  it  must  be 
admitted  that  the  present  generation,  still  more  the  present 
century,  has  witnessed  a  marvelous  and  on  the  whole  bene- 
ficial extension  of  the  business  of  government,  accompany.- 
ing  a  diminution  in  petty  interferences  with  individual 
action.  Public  schools  occur  to  one  as  a  new  source  of  ex-- 
penditure  every-where  in  the  civilized  world.  Sewerage, 
sanitation,  gas,  and  electric  lights,  public  parks,  public  baths, 
public  libraries,  ail  these  are  among  new  items  in  the  budgets 
of  cities.  Fine  State  universities  all  over  the  world  are  being 
supported  by  enlightened  democratic  sentiment  out  of  pub- 
lie  funds,  and  it  is  probable  that  in  a  not  distant  future  some 
of  the  greatest  American  universities  will  be  found  among 
the  best  of  the  State  universities  of  our  West.  Expendi- 
tures for  works  of  art  are  common,  especially  in  Europe,  but 
Boston  and  New  York  do  something  to  keep  up  art  galleries, 
and  probably  directly  or  indirectly,  as  by  exemption  from 
taxation,  many  other  cities  make  contributions  to  art  cult- 
ure. Expenditures  for  police  have  only  recently  become 


292  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

enormous,  and  it  is  a  disgrace  to  some  American  cities  that 
their  police  costs  as  much  as  their  public  schools,  though  it 
is  in  keeping  with  the  superstition  that  government  must 
only  repress  and  not  prevent  wrong-doing.  *  It  is  less  than 
fifty  years  since  Sir  Robert  Peel  replaced  in  England  the 
old  constabulary  with  a  regular  police  force,  and  that  is  why 
the  police  are  called  sometimes  "bobbies"  and  sometimes 
"  peelers." 

We  may  s.iy  that,  with  some  unfortunate  exceptions,  these 
increased  expenditures  of  governments  are  a  sign  of  health, 
but  do  not,  fairly  considered,  reveal  any  tendency  on  the  part 
of  governments  to  absorb  an  undue  proportion  of  our  in- 
dustrial life. 

Comparisons  of  Expenditures  and  Revenues  of 
Governments. — Comparisons  of  expenditures  and  revenues 
of  governments  are  misleading  unless  made  with  care.  The 
United  States,  Germany,  and  Switzerland  are  federal  gov- 
ernments, while  France,  Italy,  Great  Britain,  and  most  coun- 
tries are  single  States.  What  the  central  government  of 
France  does  embraces  what  federal  and  State  governments 
together  do  in  federations.  But  when  even  this  is  borne  in 
mind  many  other  facts  require  attention.  What  a  city  in 
one  country  does  a  province  or  a  State  may  do  in  another. 
We  must  also  ask,  "  What  is  received  for  what  is  paid  out  ?" 
The  mediaeval  custom  obtains  in  Baltimore  of  compelling 
every  one  to  sweep  the  street  in  front  of  his  house,  a  most 
expensive  and  wasteful  proceeding,  yet  one  which  does  not 
appear  in  municipal  expenditures.  It  costs  twenty  times 
what  it  would  if  done  by  a  well-organized  municipal  service, 

*  Now  York  city  now  spends  more  for  police  than  for  education.  Accord- 
ing to  tin:  Rtal  Efitak  Record  and  I>uililer\i  Guide  of  that  city  the  expenditure 
of  New  York  for  police  in  1887  was  Sl,2:{r>.8G7,  while  Unit  for  education 
was  oiily  $;i.'.)94,088.  While  expenditure  of  the  city  for  police,  increased 
G3  per  cent,  that  for  education  increased  only  17  pc-r  cent.  Berlin  is  olten 
culled  the  "model  city;"  and  it  is  generally  sn id  that  there  is  no  bpfer 
city  government.  According  to  n  recent  article  in  the  New  York  Evening 
/W.  Berlin  spends  nearly  four  times  as  much  for  education  as  for 
police. 


INTRODUCTORY.  293 

which  would  nevertheless  increase  our  taxes.  The  increased 
taxation  would  be  a  saving.  We  must  ask  in  comparisons 
of  municipal  expenditures,  "Are  streets  well  paved,  well 
cleaned, sprinkled  with  water  in  the  summer?  Are  ample  parks 
provided,  schools,  libraries,  art  galleries,  and  the  like?" 
We  must  further  distinguish  between  expenditures  and  reve- 
nues from  taxes  because  there  are  other  sources  of  revenue 
than  taxation.  American  city  governments  cost  much  in 
proportion  to  what  they  give,  because  they  neglect  these 
other  sources  of  revenue.  European  cities  instead  of  paying 
for  services  like  gas,  electric  lights,  etc.,  make  them  a  source 
of  revenue.  It  costs  the  tax-payers  less  to  govern  the  city 
of  Berlin  and  to  provide  its  magnificent  schools  of  all  grades, 
to  pave  the  streets  as  they  are  not  paved  in  any  American 
city,  to  furnish  parks,  and  do  a  great  many  things  not  dreamed 
of  with  us,  than  it  does  those  who  live  in  Boston  to  govern 
their  city,  which  is  less  than  halt'  the  size. 

Revenues  of  Government.— There  are  three  perma- 
nent sources  of  revenue.  These  are,  first,  productive  do- 
innins;  second,  industries;  third,  taxation.  There  is  one 
chief  temporary  and  limited  source  of  revenue ;  namely, 
loans,  which  must  be  rep;iid  out  of  the  other  three.  There 
are  also  various  minor  sources  of  revenue,  like  gifts,  escheats, 
or  property  which  fails  unto  the  State  in  default  of  heirs,  "con- 
science money,"  that  is,  money  sent  without  name  by  those 
who  have  defrauded  the  government,  and  the  like.  Gifts 
amount  to  more  than  is  ordinarily  supposed,  although,  of 
course,  relatively  they  are  a  small  matter. 

Formerly  gifts  were  frequently  made  for  general  expendi- 
tures of  government.  Recently  a  citizen  of  New  Jersey  left 
the  United  States  nearly  a  million  dollars  to  be  used  in  pay- 
ing the  federal  debt.  Gifts  are  now  more  generally  made  for 
special  purposes,  as  when  Mr.  Smithson  left  the  United  States 
government  half  a  million  dollars  to  be  used  in  the  founda- 
tion of  the  Smithsonian  Institution  for  the  advancement  of 
science.  A  Maryland  citizen  lias  within  a  few  months  left 
one  of  the  counties  in  the  State,  Ilarford,  nearly  a  hundred 


294  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

thousand  dollars  for  the  improvement  of  its  public  roads. 
While  the  writer  was  in  Heidelberg  a  fine  road  was  being 
made  in  that  city  from  the  proceeds  of  a  private  gift.  These 
are  simply  illustrations.  Public  schools  receive  many  gifts, 
but  not  so  many  and  so  important  gifts  in  the  United  States 
as  private  foundations,  but  in  other  countries  the  case  ap- 
pears to  be  different.  France,  and  particularly  Paris,  has 
received  large  gifts.  When  our  governments  become 
better,  gifts  will  undoubtedly  be  often  received  by  them. 

Productive  Domains  yield  considerable  sums  in  Ger- 
many. It  is  generally  thought  that  governments  should  part 
with  agricultural  land.  Not  a  great  deal  of  arable  land  is 
retained  by  governments,  although  there  is  not  so  strong  a 
tendency  to  part  with  what  remains  as  there  was  a  genera- 
tion ago.  German  States  began  to  sell  off  their  landed 
domains  some  time  since,  forests  excepted,  because  it  was 
supposed  that  private  parties  could  manage  them  better,  but 
later  experience  seems  to  throw  doubt  in  that  country  on 
this  assumption.  Land  may  be  kept  and  leased ;  the  title  to 
our  American  western  domains  might  be  kept  by  the  United 
States  or  vested  in  our  separate  States  and  the  use  purled  with 
for  a  period  until  we  have  further  light  on  the  best  form  of 
industrial  organization  ;  but  no  one  would  like  to  see  our 
American  States  or  federal  government  engage  extensively 
in  agriculture.  Model  farms,  or  agricultural  experiment 
stations,  may  be  maintained,  as  at  present. 

Industries  except  those  of  a  monopolistic  nature  have  not 
succeeded  well  as  government  undertakings  as  a  rule.  Model 
establishments  may  be  maintained,  like  model  farms.  Some 
important  industries,  like  the  manufacture  of  fine  china,  took 
their  origin  in  government  establish  men  Is.  Natural  monopo- 
lies ought  to  yield  a  large  part,  ultimately,  perhaps  half  in 
great  cities,  of  public  revenues,  but  ordinary  manufactures 
should  be  rejected.  Agriculture,  like  manufactures  and  com- 
merce, is  the  proper  Reid  for  private  enterprises. 

Public  Debts. — Great  national  debts  are  something  com- 
paratively IIL-\V  in  the  world's  history,  their  origin  being  *o 


INTRODUCTORY.  293 

recent  as  the  reign  of  William  and  Mary  in  England.  How 
important  they  are  now  will  become  apparent  by  this  quota- 
tion from  Professor  Henry  C.  Adam's  admirable  work  on 
Public  Debts:  "The  civilized  governments  of  the  present 
day  are  resting  under  a  burden  of  indebtedness  computed  at 
$27,000,000,000.  This  sum,  which  does  not  include  local  obli- 
gations of  any  sort,  constitutes  a  mortgage  of  $722  upon  each 
square  mile  of  territory  over  which  the  burdened  governments 
extend  their  jurisdiction,  and  shows  a  per  capita  indebted- 
ness of  $.);5  upon  their  subjects.  The  total  amount  of  na- 
tional obligations  is  equal  to  seven  times  the  aggregate  annual 
revenue  of  the  indebted  States.  At  the  liberal  estimate  of 
$1  50  per  day,  the  payment  <»f  accruing  interest  computed  at 
five  per  cent,  would  demand  the  continuous  labor  of  three 
millions  of  men.  Should  the  people  of  the  United  States 
contract  to  pay  the  principal  of  the  world's  debt,  their  en- 
gagement would  call  for  the  appropriation  of  a  sum  equal  to 
the  total  gross  product  of  their  industry  for  three  years ;  or, 
if  annual  profits  alone  were  devoted  to  this  purpose,  they 
would  be  enslaved  by  their  contract  for  the  greater  part  of  a 
generation." 

Alarm  has  been  often  expressed  on  account  of  these  debts. 
They  are  undoubtedly  a  misfortune,  and  should  be  paid  as 
soon  as  possible.  Serious  apprehension  does  not  seem  to  be 
called  for  so  far  as  Germany,  England,  and  the  United  States 
are  concerned.  The  productive  property  owned  by  Germany 
is  more  than  sufficient  to  pay  her  debts,  the  railways  alone 
in  several  of  the  German  States  paying  entire  interest  on  the 
debts  and  leaving  a  surplus.  England  is  gradually  making 
headway  against  the  burden  of  debt,  and  the  author's  inves- 
tigations have  shown  that  American  States  and  cities,  as 
well  as  the  federal  government,  are  rapidly  extinguishing 
their  debts.  Comparatively  little  is  owed.  Many  States  owe 
nothing;  in  others  the  debt  is  merely  nominal,  all  the  bonds 
being  owned  by  the  State.  A  few  Southern  States  alone  are 
having  trouble  with  their  debts,  and  these  will  doubtless 
soon  emerge  from  their  difficulties.  Our  cities,  too,  are  in 
13* 


296  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

this  respect  placing  themselves  on  a  solid  basis.  Americans 
may  feel  warranted  in  optimistic  views  in  the  main,  so  far 
as  public  debts  are  concerned. 

Constitutional  Limitations. —There  is  a  tendency, 
springing  out  of  fright  partly  premature,  to  place  undue 
constitutional  restrictions  upon  the  power  to  create  debts. 
This  tendency  ought  to  be  checked.  It  places  States  and 
cities  at  a  disadvantage  as  compared  with  private  corpora- 
tions. It  also  tends  to  throw  into  the  hands  of  private  cor- 
porations enterprises  which  cannot  be  paid  for  out  of  one 
year's  revenues  and  yet  properly  belong  to  the  public.  Gas- 
works are  an  illustration.  When  great  improvements,  to 
last  for  generations,  are  to  be  effected  it  is  proper  that 
part  of  the  burden  should  be  borne  by  tux-payers  in  future 
years,  and  this  can  only  be  effected  by  loans.  At  the 
present  time  excessive  limitations,  unworthy  of  a  free  peo- 
ple, make  it  impossible  for  some  States  to  improve  their 
own  property.  That  is  the  case  with  Maryland,  which  owns 
a  canal  for  the  improvement  of  which  her  constitution  will 
let  her  borrow  no  money  !  Provision  should  be  made  for  the 
extinction  of  all  debts  within  thirty- five  years,  or  say  forty 
as  a  maximum,  that  the  present  may  not  unduly  burden  the 
future,  and  especial  precaution  should  be  taken  against  hasty 
action.  In  Baltimore  no  loans  can  be  made  until  the  people 
have  by  vote  approved  of  them.  One  of  the  most  distin- 
guished of  the  mayors  of  American  cities  has  expressed  the 
fear  that  even  with  universal  suffrage  this  would  tend  to 
ultra-conservatism  and  prevent  improvements  really  needed. 
The  writer  hardly  thinks  this  fear  warranted  by  experience. 

Land  Nationalization  and  Municipalization. —  Mr. 
Henry  George  has  come  forward  with  a  scheme  for  the  abo- 
lition of  taxation  as  ordinarily  understood.  His  scheme  is 
stated  thus  in  his  own  words  printed  in  his  organ,  The 
Standard: 

"  Tke  Standard  advocates  the  abolition  of  all  taxes  upon 
industry  and  the  products  of  industry,  an.l  the  taking,  by 
taxation  upon  land  values,  irrespective  of  improvements,  of 


INTRODUCTORY.  297 

the  annual  rental  value  of  all  those  various  forms  of  natural 
opportunities  embraced  under  the  general  term,  Land. 

"We  hold  that  to  tax  labor  or  its  products  is  to  discour- 
age industry.  We  hold  that  to  tax  land  values  to  their  full 
amount  will  render  it  impossible  for  any  man  to  exact  from 
others  a  price  for  the  privilege  of  using  those  bounties  of 
nature  in  which  all  living  men  have  an  equal  right  of  use; 
that  it  will  compel  every  individual  controlling  natural  op- 
portunities to  utilize  them  by  employment  of  labor  or  aban- 
don them  to  others;  that  it  will  thus  provide  opportunities 
of  work  for  all  men,  and  secure  to  each  the  full  reward  of 
his  labor ;  and  that  as  a  result  involuntary  poverty  will  be 
abolished,  and  the  greed,  intemperance,  and  vice  that  spring 
from  poverty  and  the  dread  of  poverty  will  be  swept  away." 

He  proposes  that  the  State  shall  take  the  pure  economic 
rent  of  land,  and  thinks  that  this  will  abolish  poverty.  It 
might  prevent  people  who  do  not  care  to  use  the  land  from 
keeping  land  away  from  those  who  want  to  use  it,  but  how 
it  would  bring  about  all  the  predicted  blessings  it  is  difficult 
for  most  people  to  understand.  AVith  the  best  will  and  with 
every  desire  to  be  unprejudiced  the  writer  has  never  yet 
seen  how  pure  economic  rent  of  agricultural  land  can  be 
separated  from  the  annual  value  of  the  improvements  on  and 
in  the  land.  Apart  from  all  this,  the  confiscation  of  rent,  or 
even  if  it  be  called  by  so  gentle  a  name  as  appropriation  of 
rent,  by  the  public  without  compensation  to  present  owners 
Avill  never,  in  the  writer's  opinion,  appeal  to  the  conscience 
of  the  American  public  as  a  just  thing.  Abstract  reasoning 
based  on  assumed  natural  rights  will  not  convince  a  modern 
nation.  It  is  but  another  illustration  of  the  danger  of  rea- 
soning based  on  natural  rights. 

It  is  easy  in  cities  to  separate  pure  economic  rent  from 
f'/nt  for  improvements,  and  it  is  done  a  thousand  times  a 
day.  The  principal  evils  of  private  land-holding  are  seen  in 
cities,  and  the  objections  to  land  nationalization  do  not 
wholly  apply  to  land  municipalization.  Many  will  favor  the 
latter  who  reject  the  former,  but  even  in  this  matter  one 


238          AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

should  proceed  cautiously.  No  confiscation  or  thought  of 
confiscation  should  for  a  moment  be  tolerated,  but  if  great 
and  expensive  changes  are  desired  the  burden  should  be  dif- 
fused by  means  of  inheritance  and  other  taxes  throughout 
the  community  equitably.  Suggestions  for  some  cautious 
steps  in  land  municipalization  are  offered  in  the  author's  work, 
Taxation  in  American  States  and  Cities,  in  chapter  iv  of 
Part  III. 


CHAPTER   II. 

TAXATION. 

Private  Property. — As  the  State — and  this  word  is  used 
in  its  generic  sense,  including  our  federal  government  as  well 
as  separate  commonwealths — determines  what  shall  be  private 
property,  it  determines  the  conditions  of  its  existence,  and  it 
will  be  found,  on  examination,  that  nowhere  has  there  ever 
existed  any  such  thing  as  absolute  private  property.  The 
rights  of  private  individuals  have  always  been  of  a  more  or 
less  limited  nature,  and  among  the  rights  reserved  by  the 
people  in  their  organic  capacity  will  be  found  in  every  civil- 
ized State  the  right  to  take  a  portion  of  the  wealth  produced 
for  such  purposes  as  the  law-making  power  may  deem  fit. 
The  aim,  of  course,  should  be  the  promotion  of  the  public 
welfare. 

It  has  been  said  that  there  are  no  limitations  to  the  right 
of  the  State  to  take  private  property.  Canon  Fremantle  says 
that  as  the  State  for  its  purposes  can  require  us  to  give  up 
our  lives,  it  also  can  ask  us  to  surrender  our  private  property. 
John  Stuart  Mill  holds  that  public  utility  is  the  only  basis 
on  which  private  property  can  rest,  and  he  argues  against 
socialism  because  he  believes  that  the  public  welfare  is  best 
served  by  private  property  in  the  greater  part  of  the  instru- 
ments of  production. 

Constitutions  in  the  United  States  are  the  basis  of  the  in- 
stitution of  private  property,  and  thus  largely  control  taxa- 
tion, but  constitutions  themselves  of  course  change  from  time 
to  time  and  are  but  one  kind  of  law;  namely,  the  fundamental 
law  to  which  other  laws  must  conform. 

We  see,  then,  that  the  right  to  tax  is  a  part  of  the  right  of 
private  properly.  Both  have  grown  up  together,  and  both 


300  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

are  defended  alike  by  constituted  authorities.  It  may  be 
said  that  to  attack  the  one  right  is  to  attempt  to  invade  the 
other.  Curious  as  it  may  seem,  Henry  George,  who  denies 
the  right  of  private  property  in  land,  disputes  also  the  right 
of  government  to  lay  taxes,  as  ordinarily  understood,  and 
calls  taxation  robbery. 

Our  conception  of  taxation  removes  a  multitude  of  con- 
fused notions.  Lawyers  often  say  that  taxation  is  a  pay- 
ment for  protection,  yet  their  law  books  tell  them  that  those 
laws  which  apply  to  payments  and  debts  arising  out  of  fail- 
ure to  make  payments  do  not  at  all  apply  to  taxes.  It  is 
sometimes  attempted  to  defend  public  schools  as  adding  to 
the  value  of  private  property,  as  if  that  were  supreme,  whereas, 
it  is  solely  a  question  of  the  welfare  of  the  land,  and,  of 
course,  property  is  but  a  means  to  an  end,  and  the  end  is 
man.  The  elements  of  private  contracts  are  not  present  in 
taxation. 

Government  a  Partner  in  Production. — Taxes  have 
been  defended  on  another  ground.  It  is  said  that  govern- 
ment participates  in  all  production,  and  is  as  much  a  factor 
in  the  creation  of  wealth  as  land,  labor,  or  capital.  Truly 
this  is  so,  for  without  government  we  should  have  anarchy 
and  a  return  to  barbarism,  which  would  destroy  all  produc- 
tion. It  is  then  held  that,  as  government  is  a  factor  in  pro- 
duction, it  is  entitled  to  a  share  of  the  wealth  produced.  This 
is  a  sound  position,  but  peculiar  principles  regulate  the  share 
of  government.  The  portions  which  go  to  land,  to  labor,  and  to 
capital  are  determined  chiefly  by  voluntary  agreement,  where- 
as government  by  virtue  of  its  own  sovereignty  determines 
what  share  it  will  take.  It  may  be  asked,  then,  What  guar- 
antee have  we  that  government  will  not  take  an  undue  share 
of  the  annual  income  of  the  country  ?  We  have  the  same 
guarantee  that  we  have  that  government  will  not  abuse  its 
other  powers  :  the  moral  sense  of  those  who  govern  ;  also 
their  self-interest.  Government  in  a  republic  is  after  all  only 
the  people  in  their  organic  capacity,  and  the  question  is  this: 
Will  the  people  injure  themselves,  or  suffer  themselves  to  be 


TAXATION.  301 

injured?  Self-government  rests  upon  the  hypothesis  that 
they  will  not. 

As  it  is  essential  that  any  reform  of  taxation  should  be 
based  on  a  clear  conception  of  taxation,  it  is  further  neces- 
sary, if  we  would  act  well,  that  we  should  proceed  Avith  a 
correct  understanding  of  some  general  propositions  applica- 
ole  to  taxation. 

It  is  first  of  all  to  be  remembered  that  taxation  in  itself  is 
not  an  evil;  it  is  a  blessing.  This  sounds  paradoxical;  does 
it  not?  Nevertheless,  it  is  true,  as  it  will  be  found  on  an  ex- 
amination of  the  historical  development  of  constitutional  gov- 
ernments that  taxation  was  the  instrumentality  whereby  the 
common  people  obtained  their  liberties.  Monarehs  needed 
revenues,  and  wrere  obliged  to  ask  for  them;  as  a  matter 
of  fact,  they  could  not  secure  sufficient  and  regular  revenues 
otherwise.  These  revenues  have  been  granted  condition- 
ally. "  Yes,"  the  people  said  to  their  sovereigns,  "  we  will 
grant  you  the  revenues  if  you  will  grant  us  our  demands." 
Thus  step  by  step  popular  rights  have  been  secured.  The 
total  abolition  of  taxation  would  undoubtedly  be  one  of  the 
most  effective  and  most  dangerous  blows  to  popular  govern- 
ment which  it  could  well  receive. 

Taxation  Increases  with  Freedom. — Very  generally 
increased  freedom  is  accompanied  by  increased  taxation.  Com- 
pare despotic  Russia's  State  expenditure  for  schools,  thirteen 
cents  per  capita,  with  that  of  the  enlightened  and  free  re- 
public, the  State  or  canton  of  Zurich,  in  Switzerland,  one 
dollar  and  twenty-five  cents  per  capita.  It  maybe,  however, 
more  correct  to  say  that  governmental  expenditures  are  large 
in  all  civili/.ed  nations;  for  expenditures  are  one  thing  and 
taxes  are  another,  because  there  are  other  sources  of  revenue 
than  taxation. 

Sin'ill  expenditures  mean  small  results,  and  no  money  we 
pay  begins  to  yield  such  returns  as  money  paid  in  taxation, 
provided  always  that  it  is  prudently  expended  by  a  good  gov- 
ernment. Let  a  small  house-owner  in  a  city  like  Baltimore, 
who  pays,  say,  fifty  u  illars  a  year  in  taxes,  reflect  on  what  he 


802  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

receives  in  return.  He  receives,  dollar  for  dollar,  five  times 
as  much  as  for  any  other  expenditure.  Streets,  libraries, 
free  schools,  protection  to  property  and  person,  including 
health  department,  pleasure-grounds  royal  in  their  magnif- 
icence— all  these  are  placed  at  his  service.  What  private 
corporation  ever  gave  one  fifth  as  much  for  the  same  money  ? 
When  we  compare  various  countries  at  the  present  time,  we 
find  that  expenditures  of  barbarous  and  backward  countries 
are  small.  In  some,  doubtless,  there  is  no  real  taxation,  for  the 
tribute  of  the  East  is  different  in  its  nature  from  taxation,  it 
is  more  like  ransom;  something  exacted  of  a  subjugated  people, 
not  self-imposed  taxes.  So  if  we  compare  the  past  with  the 
present  we  shall  find  large  increase  in  expenditures  with  ad- 
vance of  civilization. 

Taxation  Increases  Production. — Another  advantage 
of  taxation  is  mentioned  by  the  Scotch  political  economist 
McCulloch.  This  advantage  of  taxes  will  be  described 
in  his  own  words:  They  stimulate  individuals  to  endeavor, 
by  increased  industry  and  economy,  to  repair  the  breach 
taxation  has  made  in  their  fortunes,  and  it  not  infrequently 
happens  that  their  efforts  do  more  than  this,  and  that,  con- 
sequently, the  national  wealth  is  increased  through  increase 
of  taxation. 

"  But  we  must  be  on  our  guard  against  an  abuse  of  this 
doctrine.  To  render  an  increase  of  taxation  productive  of 
greater  exertions,  economy,  and  invention,  it  should  be  slow- 
ly and  gradually  brought  about,  and  it  should  never  be  car- 
ried to  such  a  height  as  to  incapacitate  individuals  from  mak- 
ing the  sacrifices  it  imposes  by  such  an  increase  of  industry 
and  economy  as  it  may  be  in  their  power  to  make,  without 
requiring  any  very  violent  change  in  their  habits.  .  .  .  Such 
an  excessive  weight  of  taxation  as  it  was  deemed  impossible 
to  meet  would  not  stimulate  but  destroy  exertion.  Instead 
of  producing  new  efforts  of  ingenuity  and  economy,  it  would 
produce  only  despair." 

Let  us  consider  another  paradox:  no  country  ic<i$  ever  yet 
ruined  by  large  expenditures  of  money  by  the  public  and  for 


TAXA  TION.  SOS 

the  public.  Countries  have  been  ruined  by  evils  connected 
with  taxation.  Robbery  and  extravagance  have  frequently 
accompanied  both  expenditures  of  government  and  taxation, 
and  these  have  ruined  great  nations.  Rome  may  be  cited 
as  an  instance.  The  case  of  France  before  the  Revolution 
is  also  instructive.  Books  are  full  of  the  evils  of  burden- 
some taxes  in  pre-revolutionary  France,  but  the  truth  is  that 
the  total  amount  raised  by  taxation  in  France  was  ridicu- 
lously small  as  compared  with  nineteenth  century  taxation. 
The  trouble  was  that  the  burden  was  unjustly  distributed, 
and  the  wealthiest  classes  shifted  the  taxes  on  the  weak  and 
defenseless.*  France  has  since  then  prospered  under  heavier 
taxation.  The  taxes  over  which  our  forefathers  in  this 
country  and  in  England  fought,  bled,  and  died  were  not 
large,  and  the  taxes  in  themselves  were  not  the  real  griev- 
ance. It  was  evils  connected  with  taxation  against  which 
they  successfully  struggled. 

Public  Parsimony. — Let  us  next  turn  our  attention  to 
some  of  the  evil  results  of  undue  economy,  or  more  properly 
speaking,  niggardliness. 

The  Chautau quan  in  its  issue  for  October,  1888,  alluded 
to  the  case  of  Duluth,  Minnesota,  and  Denver,  Colorado. 
Typhoid  fever  broke  out  in  both  cities  last  fall  on  account 
of  failure  to  spend  sufficient  money  for  public  health;  and 
a  few  years  ago,  Memphis,  Tennessee,  lost  two  thirds  of 
her  population  and  one  fourth  of  her  commerce  on  account  of 
a  niggardly  public  policy.  "  And  still,"  says  the  editor  of 
T/te  Chautau(ji«in,  "city  councils  hesitate  about  incurring 
tlu1  expense  of  sewers  and  water-works." 

A  scandal  has  arisen  in  Brooklyn  about  overcrowding  in 
an  insane  asvltim,  and  short-sighted  parsimony  in  cities  is 
continually  leading  to  waste  and  destruction.  Our  great 
cities  are  now  failing  to  provide  sufficient  school  accommoda- 
tions for  children  of  school  age,  and  large  numbers  are  grow- 
ing up  to  take  their  place  among  the  ignorant  and  vicious 

*  Vauliiui,  one  of  the  ^contest  of  the  French  economic  writers  of  the 
eighteenth  century,  brings  ihis  out  clrnrly  in  his  work,  l>imc  h'mjalt'. 


304  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

poor.  We  can  see  in  our  national  capital  many  results  of 
the  idea  that  that  is  the  best  administration  which  spends 
least.  It  is  on  that  account  that  Congress  refuses  to  pay  the 
superintendent  of  schools  in  Washington  a  salary  in  pro- 
portion to  the  importance  of  the  office.  It  is  on  this  account 
that  Congress  has  never  yet  made  a  decent  appropriation  for 
the  library  of  the  Bureau  of  Education,  which  is  doing  so 
valuable  a  work.  It  is  on  this  account  that  heads  of  bureaus 
will  not  ask  for  money  which  they  know  they  could  use  for 
the  public  advantage.  It  is  on  this  account  that  clerks  have 
actually  found  it  difficult  to  get  blotting  paper  and  pencils 
for  their  offices.  It  is  on  this  account  that  Congress  reduced 
the  appropriation  for  our  national  library  building  from  $10,- 
000,000  to  $4,000,000 — a  shame  and  humiliation  to  us.  How 
could  money  be  better  spent  than  in  erecting  a  suitable 
building  for  the  greatest  library  in  the  country?  Ought  it 
not  to  be  a  grand  building  to  symbolize  the  value  of  intel- 
lectual treasures  and  to  impress  upon  the  senses  the  nature 
of  true  riches  ?  Now  the  building  must  be  stripped  of  all 
ornamentation.  One  Congressman  said  truly,  "  Ten  millions 
is,  after  all,  only  a  per  capita  expenditure  of  twenty  cents." 
But  another  Congressman  replied,  "  Twenty  cents  means 
three  loaves  of  bread."  Perhaps  this  was  a  bid  for  labor 
votes,  but  could  demagogism  go  further  ?  The  best  part  of 
the  press  laments  this  unseemly  parsimony,  but  it  should  re- 
member that  it  is  a  legitimate  outcome  of  the  notion  that 
that  is  the  best  administration  which  spends  least. 

We  must  guard  against  parsimony  as  well  as  extravagance, 
and  in  some  respects  the  former  is  more  dangerous,  because 
it  more  readily  conceals  itself  beneath  the  mask  of  patriot- 
ism. We  praise  a  private  individual  who  spends  bountifully, 
when  his  expenditures  are  justified  by  results.  The  case  of 
a  city  is  similar.  We  must  be  very  careful,  very  prudent. 
What  is  needed  is  a  more  careful  examination  of  particulars. 
We  praise  and  we  blame  too  much  "  in  a  lump."  To  cities 
and  countries,  as  well  as  to  individuals,  does  this  proverb  of 
Solomon  apply  :  "  There  is  that  scattereth  and  yet  iucreas- 


TAXA  TION.  305 

eth;  and  there  is  that  withholdeth  more  than  is  meet,  but  it 
tendeth  to  poverty."  This  is  emphasized  on  account  of  the 
vast  amount  of  nonsense  talked  about  the  large  expenditures 
of  States  and  cities.  More  or  less  is  wasted,  more  or  less 
stolen,  but,  after  all,  comparatively  little;  and  we  observe  that 
governmental  expenditures  have  increased  most  rapidly  where 
there  is  no  suspicion,  even,  of  corruption.  Those  are  looking 
for  a  Utopia  who  seek  to  reduce  very  greatly  expenditures 
of  modern  States  and  cities.  We  can  make  no  headway 
against  a  strong  current  of  national  life  like  that  which  brings 
about  increased  expenditures  of  governments.  We  must 
rather  put  ourselves  in  it  and  try  to  guide  and  direct  it. 
We  have  three  main  facts  to  bear  in  mind: 

1.  We  must  set  our  faces  against  all  extravagance,  jobbery, 
and  robbery. 

2.  We  must  avoid  the  "  too  much  "  and  the  "  too  little." 
Prudent  liberality  will  yield  best   results.      We  must  look 
ahead.      To  conserve  future  interests  is  one  of  the  special 
functions  of  government. 

3.  It  is  a  hard  thing  for  some  to  live  under  present  burdens. 
The  remedies  for  the  evils  connected  with  taxation  are  in 

general  of  two  kinds: 

1.  Better  adjustment  of  the  burdens  of  taxation. 

2.  Better  utilization  of  public  resources. 

1.  Better  Adjustment  of  the  Burdens  of  Taxation. 
— Our  national  taxes  fall  chiefly  on  commodities,  and  taxes 
of  tliis  kind  are  called  indirect.  They  are  not  proportioned 
to  the  value  either  of  the  property  or  of  the  income  of  citi- 
zens, and  are  very  generally  regarded  as  unjust  to  the  poorer 
classes  unless  counterbalanced  by  other  taxes  which  bear 
more  heavily  on  the  rich  than  on  the  poor  and  well-to-do. 

Indirect  federal  taxes  are  of  two  kinds:  customs  duties,  or 
taxes  on  imported  commodities,  and  internal  revenue,  or  ex- 
cise taxes,  as  they  are  also  technically  called,  or  taxes  on  ar- 
ticles produced  in  the  United  States.  Internal  revenue  taxes 
are  now  confined  to  a  few  products,  like  oleomargarine,  to- 
bacco,  and  intoxicating  beverages,  the  two  latter  yielding 


S06  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

nearly  all  of  the  internal  revenues.  Anung  thinkers  there 
seems  to  be  a  general  sentiment  in  favor  of  the  retention  of 
taxes  on  articles  produced  in  the  country  which  are  now 
taxed  by  the  federal  government.  The  question  of  free 
trade  and  protection  is  not  involved.  When  the  national 
government  depends  exclusively  upon  revenues  from  taxes 
on  imported  articles  the  revenues  are  too  uncertain  and  too 
irregular,  and  yield  least  when  most  is  needed.  The  State 
and  city  revenues  are  largely  raised  by  taxes  on  property. 
Such  taxes,  and  taxes  on  incomes,  are  called  direct  taxes. 

Property  in  States  and  cities  is  generally  valued  and  all 
taxed  at  a  uniform  rate.  The  difficulty  is  that  real  estate, 
that  is,  lands  and  houses,  is  visible  and  can  readily  be  found 
by  tax  assessors,  while  a  great  deal  of  property — say  one  half 
of  all  property — is  in  the  form  of  stocks,  bonds,  instruments 
of  credit,  and  the  like,  and  often  cannot  be  found  at  all.  The 
result  is  that  real  estate  generally  pays  an  undue  share  of  taxes. 
Competent  business  men  in  Boston,  including  the  president 
of  the  Boston  Merchants'  Association,  Mr.  Jonathan  A.  Lane, 
have  estimated  that  in  Boston  personal  property  is  four  times 
as  valuable  as  real  estate,  although  it  is  assessed  for  only  one 
fourth  as  much.  The  problem  is  a  better  adjustment  of  the 
burdens  of  State  and  local  taxes,  so  as  to  make  those  pay 
their  share  who  own  invisible  or  easily  concealed  property; 
also  so  as  to  make  that  considerable  class  contribute  something 
to  the  support  of  government  who  have  little  or  no  prop- 
erty, but  enjoy,  nevertheless,  large  incomes,  sometimes  larger 
than  the  accumulations  of  the  life-time  of  the  ordinary  man. 

Income  Tax. — An  income  tax  seems  the  most  promising 
remedy,  but  against  this  there  is  in  many  quarters  an  unrea- 
sonable prejudice.  All  efforts,  however,  to  find  personal 
property  have  so  far  proved  unavailing,  and  there  is  no  pros- 
pect that  they  will  succeed  better  in  the  future.  Space  is 
too  limited  to  treat  at  length  of  this  subject.  It  may  be  said 
that  while  general  personal  property  taxes  become  worse  and 
worse  the  longer  they  exist,  wherever  a  rational  kind  of  in- 
come tax  has  been  laid,  as  in  Switzerland,  Prussia,  and  En- 


TAXATION.  307 

gland,  the  longer  it  lasts  the  better  it  works,  and  the  more 
general  the  popular  approval.  It  is  the  only  way  in  which  a 
large  and  influential  and  even  rich  class  can  be  made  to  bear 
its  fair  share  of  taxes.  Where  this  class,  including  profes- 
sional men,  is  exempt  from  taxation  its  members  are  apt  to 
become  careless  and  indifferent  about  government  —  poor 
citizens.  Income  taxes  are  in  harmony  with  the  democratic 
sentiment  of  popular  government. 

Inheritances  and  Bequests  can  be  made  to  yield  more 
than  at  present  without  any  infringement  of  the  rights  of 
individual  property.  Collateral  inheritances  are  taxed  by 
New  York,  Pennsylvania,  and  Maryland,  but  why  should 
collateral  inheritance  apart  from  a  will  be  allowed  at  all  ex- 
cept among  near  relatives  '?  Why  should  third  cousins  in- 
herit from  one  another  at  all  unless  money  is  left  by  will  ? 
Are  third  cousins  nearer  to  one  than  the  town  or  city  in  which 
one  has  lived, and  where  one  has  been  able  to  acquire  a  fortune  ? 
The  extent  to  which  intestate  collateral  inheritance  is  carried 
is  a  survival  of  the  sentiment  of  the  time  Avhen  people  lived 
in  clans,  and  is  ridiculous  in  our  day.  Right  and  duty  should 
be  co-ordinated.  Am  I  compelled  by  law  to  support  an  uncle 
who  is  unable  by  incapacity  to  earn  a  livelihood  ?  Then  I 
should  inherit  from  him;  otherwise  not,  unless  he  leaves  me 
property  by  will.  The  property  should  go  to  the  State  in  the 
absence  of  near  relatives  when  no  will  is  made.  The  enlight- 
ened English  jurist,  Jeremy  Bentham,  wished  to  restrict  in- 
heritance and  extend  escheat,  and  thus  abolish  taxation  alto- 
gether, but  this  is  going  too  far. 

Several  terms  must  be  explained  which  readers  will  meet 
with  in  their  studies  in  finance.  Proportional  taxes  are 
taxes  in  exact  proportion  to  the  property  or  income  taxed. 
The  rate  is  constant:  one  per  cent.,  two  per  cent.,  or  three 
per  cent.,  as  the  case  may  be,  throughout.  Progressive  taxes 
are  taxes  with  an  increasing  percentage  with  increasing 
properly  or  income:  :is  one  per  cent,  on  the  first  thousand 
dollar-;  taxed,  two  per  cent,  on  the  second  thousand,  and  the 
like.  l'ro<jressive  taxation  is  often  called  graduated  tax  a- 


308  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

tion.  A  tax  is  regressive  when  the  rate  per  cent,  increases 
as  the  property  taxed  decreases.  If  a  man  with  five  thou- 
sand dollars  is  taxed  two  per  cent,  and  one  with  three  thou- 
sand is  taxed  three  per  cent,  this  is  regressive  taxation. 
Business-license  taxes  in  Maryland,  and  generally  in  South- 
ern States,  are  regressive.  Indirect  taxes  are  said  to  be,  in 
their  effect  on  the  citizens,  regressive.  When  we  have  one 
uniform  rate  of  taxation  but  unequal  assessment,  the  wealthy 
being  assessed  relatively  less  than  the  well-to-do  and  the 
poor,  we  also  have  regressive  taxation. 

A  tax  is  digressive  if  a  certain  sum  is  exempt  from  taxa- 
tion, and  all  above  that  sum  is  taxed  at  one  uniform  rate. 

If  all  incomes  of  six  hundred  dollars  are  exempt  from 
taxation  and  all  incomes  above  that  sum  and  only  on  that 
excess  were  taxed,  say  one  per  cent.,  it  would  be  digressive 
taxation.  Income  taxes  are  often  digressive.  Digressive 
taxes  are  also  called  progressional. 

2.  Better  Utilization  of  Public  Resources. — By  this 
is  meant  that  public  property  and  its  use  should  be  paid  for. 
Cities  and  States  should  stop  making  presents  to  corpora- 
tions. If  street-car  companies  use  the  streets  they  should 
pay  for  the  privilege.  This  is  sometimes  done,  but  too 
often  the  public  is  robbed.  The  Baltimore  street-car  compa- 
nies, as  has  already  been  stated,  pay  to  the  city  nine  dollars 
for  every  hundred  they  collect,  but  this  is  not  enough. 
When  live-cent  fares  are  charged,  street-car  companies  in 
great  cities  can  sometimes  afford  to  pay  as  high  as  forty  or 
fifty  dollars  to  the  city  for  every  hundred  they  collect. 
Similar  principles  should  be  applied  to  other  corporations 
using  streets,  like  gas,  electric  lighting,  telephone  companies. 
It  is,  however,  best  for  the  city  to  manufacture  its  own  gas 
and  electric  lights  and  to  provide  itself  with  water.  This 
part  of  our  subject  has  already  been  sufficiently  discussed  for 
present  purposes. 


PART  VII. 

THE    EVOLUTION    OE    ECONOMIC   SCIENCE. 


CHAPTER  I. 

INTRODUCTORY. 

THE  explanation  already  given  of  economic  life  would  in 
itself  lead  us  naturally  to  look  for  a  corresponding  evolution 
of  economic  science,  and  this  has  indeed  taken  place.  Every 
economic  system,  like  every  philosophical  system,  is  to  a 
greater  or  less  extent  a  mirror  in  which  is  reflected  the  aims, 
the  character,  the  time-spirit — in  short,  the  entire  life,  na- 
tional, mental,  spiritual — of  the  period  when  it  arose  and  of 
any  period  in  which  it  received  support,  and  of  the  place 
where  it  arose  and  of  any  other  place  where  it  gained  sup- 
port. A  man  can  no  more  escape  entirely  the  influence  of 
his  environments  than  he  can  lift  himself  over  a  fence  by 
tugging  at  his  boot-straps.  One  writer  will  reflect  one  part 
of  the  life  of  the  people,  a  second  another  side  of  this  life, 
and  so  on  indefinitely.  Thus  we  have  a  picture  of  the  con- 
flicting interests  of  the  age.  Dissatisfaction  with  an  age 
and  attempts  at  reform  are  likewise  products  of  time  and 
place,  and  perhaps  more  clearly  than  anything  else  reveal  its 
true  character.  This  must  not  be  regarded  as  an  expression 
of  political  fatalism,  for  the  will  of  man  is  always  a  main 
factor  to  be  considered. 

These  considerations  show  us  the  nature  of  the  evolution  of 
economic;  science  and  reveal  to  us  the  utility  of  the  study 
of  this  evolution  in  the  history  of  political  economy.  The 
present  is  a  product  of  the  past. 

The  history  of  political  economy  points  out  past  errors  and 
enables  us  to  avoid  a  repetition  of  them.  It  trains  us  in 
habits  of  economic  reasoning.  Political  economv  can  never 
give  ready-made  answers  to  all  the  perplexing  questions  of 
practical  life,  and  that  for  this  reason:  the  present  is  never 
14 


312  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

quite  like  the  past.  Some  new  element  is  always  involved. 
Nevertheless,  old  mistakes  are  often  still  mistakes  when  tried 
again,  and  these  can  frequently  be  avoided  by  a  knowledge 
of  what  has  been. 

A  study  of  the  evolution  of  'economic  life  and  its  proper 
science  may  reveal  to  us  the  course  of  progress.  It  may — 
indeed  it  does — reveal  to  us  powerful  on-moving  currents 
which  it  were  folly  to  attempt  to  turn  back,  but  which,  nev- 
ertheless, can  be  guided  and  directed  within  certain  bounds. 

The  Physiocrats. — Political  economy,  as  a  distinct  sci- 
ence, began  when  there  was  first  an  attempt  to  treat  system- 
atically the  general  facts  pertaining  to  the  entire  economic 
life  of  society,  separating  them  from  other  facts  as  one 
branch  of  knowledge.  This  was  first  done  in  the  latter  half 
of  the  last  century  by  writers  of  a  French  school  whom  we 
call  Physiocrats.  Political  economy  is,  then,  little  more  than 
one  hundred  years  old. 

Political  economy  did  not,  however,  come  at  once  suddenly 
into  being.  Economic  ideas  are  found  in  all  the  greatest 
writers  of  the  past  on  politics,  philosophy,  and  religion,  and 
these  gradually  grow  and  developed  until  they  were  separated 
out  of  a  larger  whole  and  constructed  into  a  separate  science. 

The  question  is  often  asked,  Why  did  not  economic  science, 
as  a  separate  science,  arise  earlier  in  the  world's  history  ? 
An  examination  of  this  history  gives  the  answer.  We  may 
take  the  Greeks.  Why  did  the  Greeks  not  have  a  complete 
political  economy  ?  Another  question  will  help  us  to  answer 
why.  What  have  always  been  the  two  most  fruitful  sources  of 
economic  inquiry  ?  They  have  been  financial  operations  of 
governments  and  questions  concerning  labor.  Now,  great 
financial  operations  of  governments  are  modern.  The  rev- 
enues of  Athens  at  the  beginning  of  the  Peloponncsian  War, 
in  the  fifth  century  before  the  Christian  era,  amounted  to 
something  like  a  million  of  dollars;  a  mere  bagatelle  in  a 
modern  national  budget,  which  runs  into  the  hundreds  of 
millions.  It  has  already  been  mentioned  that  national  debts 
are  scarcelv  two  hundred  vears  old.  Taxes  like  those  we  know 


INTROD  UCTOR  Y.  313 

are  also  new.  For  over  a  century  Rome  was  untaxed,  and 
Cicero  in  one  of  his  works  speaks  of  taxation  almost  as  we 
might  of  a  reign  of  anarchy.  But  what  about  labor  ?  Labor 
was  despised.  Aristotle  thought  that  all  industrial  classes, 
employers  and  employes  alike,  were  unworthy  of  citizen- 
ship. Yet  this  is  not  all;  political  economy  deals  with  in- 
dustrial relations,  and  these  relations  were  less  numerous  and 
less  important  in  ancient  times.  This  subject  has  already 
been  treated. 

When  we  pass  on  from  Rome  to  the  Middle  Ages,  after 
the  breakdown  of  the  Roman  Empire,  we  iind  an  unsettled 
condition  of  society,  which  would  naturally  retard  the  devel- 
opment of  political  economy.  As  other  causes  for  the  fail- 
ure of  the  Middle  Ages  to  develop  a  political  economy  may 
be  mentioned  the  too  exclusive  devotion  of  scholars  to  relig- 
ion and  metaphysics,  the  absorption  with  ancient  authorities, 
and  the  dread  of  originality.  The  great  men  of  the  Middle 
Ages  had  their  own  work,  and  this  was  the  reconstruction  of 
a  civilization  on  the  ruins  of  the  old  world.  Church  and 
empire  were  the  agencies  for  this  reconstruction,  and  these 
absorbed  the  talent  of  the  times. 

At  the  close  of  the  fifteenth  century  a  new  world  in  the 
Occident  was  discovered,  and  this  gave  a  new  impulse  to 
thought,  and  within  two  centuries  forced  new  and  strange  eco- 
nomic phenomena  upon  the  attention  of  Europeans.  This  new 
world  has  continued  to  force  new  phenomena  of  an  economic 
nature  upon  the  old  world  even  up  to  the  present  year,  and 
has  ever  been  a  fruitful  cause  of  economic  study.  The  new 
course  of  trade  to  the  East,  which  followed  upon  the  discov- 
ery of  the  route  to  India  around  the  Cape  of  Good  Hope  by 
Vasco  da  (Jama  in  149*,  must  be  mentioned  as  still  another 
cause  of  economic  inquiry. 

The  great  Protestant  Reformation  in  the  sixteenth  century 
effected  radical  changes  in  economic,  political,  and  intellect- 
ual life,  and  <;ave  rise  to  speculations  which  finally  termi- 
nated in  what  is  technically  known  in  the  history  of  political 
economy  -is  the  mercantile  system. 


CHATTER  II. 

ECONOMIC  IDEAS  IN  THE  ANCIENT  WORLD  AND  THE  MIDDLE 

AGES. 

IT  is  not  proposed  to  present  a  history  of  political  economy, 
which  would  require  a  far  larger  work  than  the  present,  but 
simply  to  indicate  in  the  briefest  possible  way  the  main  cur- 
rents of  economic  thought. 

The  Orient. — Little  attention  is  usually  given  by  econo- 
mists to  the  East,  partly  because  it  is  probably  insufficiently 
appreciated,  partly  because  its  general  life  has  been  so  im- 
perfectly investigated  and  materials  for  knowledge  are  still  so 
imperfect  and  difficult  of  access;  finally,  partly  because  our 
young  science  has  found  more  fruitful  fields  still  unworked. 
The  ancient  Eastern  nations  were  theocracies,  and  under  the 
guidance  of  priests  who  prescribed  duties  and  often  methods 
of  economic  action,  frequently  going  into  details.  The 
ethics  of  economics  were  somewhat  cultivated,  and  such  as 
they  were  they  were  reduced  to  practice.  They  entered 
into  every -day  life  as  our  higher  ethical  principles  unfort- 
unatelv  do  not.  We  encounter  warnings  against  the  sins 
of  wrath,  pride,  and  arrogance,  and  exhortations  to  a  kindly 
treatment  of  inferiors.  Thrift  and  temperance  were  en- 
couraged, just  weights  and  measures  prescribed.  A  simple 
division  of  labor  between  economic  classes  took  place  and 
these  classes  sometimes  became  estates.  Indeed,  Sir  Henry 
Maine  says  that  in  India  to-day,  with  the  exception  of 
the  two  highest  castes,  "  caste  is  merely  a  name  for  a 
trade  or  occupation."*  Conservatism  was  held  to  be  a 
sacred  duty  and  radical  changes  were  considered  rebellions 
against  the  divine  law.  Progress  was  thus  rendered  im- 

o  o 

*  Village  Communities^  American  edition,  p.  .ri7. 


ECONOMIC  IDEAS  IN  THE  ANCIENT  WORLD.         315 

possible.  National  exclusiveness  was  a  universal  policy. 
Trades,  commerce,  and  manufactures  were  held  in  slight 
esteem,  but  agriculture  met  with  more  favor.  The  ethico- 
economic  ideas  of  the  Orient  deserve  especial  attention.  The 
economic  ideas  of  one  Oriental  people,  the  Jews,  have  been 
tolerably  well  preserved  in  the  Bible.  These  should  be 
studied  more  carefully  than  they  have  been  by  economists. 
Biblical  views  about  usury,  debt,  and  land  tenure  are  espe- 
cially important. 

The  Greeks. — The  three  writers  among  the  Greeks  most 
interesting  to  the  economist  are  Plato,  Aristotle,  and  Xeno- 
phon,  but  by  far  the  most  important  is  Aristotle. 

Plato  describes  a  Utopia  in  his  Republic.  His  aim  was  to 
picture  an  ideal  society  in  which  the  ills  of  society  were  to 
be  corrected  by  a  communistic  State,  and  he  included  a 
communism  even  of  wives  and  children,  going  further  than 
modern  communists.  The  communism  of  Plato  admitted* 
strange  as  it  may  seem,  slavery,  on  which  his  social  super- 
structure indeed  rested  as  a  base.  The  Laws  of  Plato  is  a 
more  practical  work.  It  aims  to  present  not  the  best  possi- 
ble state,  but  only  the  second  best,  and  deals  to  a  greater  ex- 
tent with  existing  institutions. 

Aristotle's  principal  work  for  us  is  the  Politics,  and  it  is 
indeed  one  of  the  most  remarkable  books  in  the  world's  his- 
tory. Its  influence  is  strongly  felt  to-day,  for  it  was  care- 
fully studied  by  theologians  of  the  Middle  Ages,  and  through 
them  entered  into  the  thought  and  life  of  their  time;  and  the 
thought  and  life  of  their  time  can  be  seen  by  the  careful 
student  to  have  entered  in  a  thousand  ways  into  the  institu- 
tions of  the  nineteenth  century.  Gladstone,  the  English 
statesman,  says  the  7V///r.s  of  Aristotle  is  one  of  the  three 
books  from  which  he  has  learned  most. 

Aristotle  combated  the  communism  of  Plato,  and  ad- 
vanced arguments  in  favor  of  private  property  which  we 
can  hear  any  day  uttered  as  new  and  original  truth.  But 
Aristotle  was  no  anarchist.  He  said  man  by  nature  is  a 
political  being,  more  literally  a  State  being,  and  he  accorded 


316  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

to  the  State  large  functions.  Aristotle  subordinated  strictly 
the  industrial  life  to  the  higher  life-spheres  of  societ}',  and 
in  some  respects  the  most  advanced  political  economy  is  a 
return  to  Aristotle. 

Aristotle,  like  the  ancients  generally,  taught  the  sinfulness 
of  interest.  Money,  he  said,  was  barren.  One  piece  of  coin 
cannot  beget  another  piece  of  coin;  hence  interest  should 
not  be  allowed.  This  is  only  a  part  of  his  argument,  but 
the  space  is  too  brief  for  further  presentation.  It  should, 
however,  be  remembered  that  many  of  the  arguments  in 
favor  of  interest  now  heard  would  not  hold  for  Aristotle's 
age. 

Among  the  works  of  Xenophon  there  may  be  mentioned 
as  of  special  importance  Ifiero,  the  Cyropcedia,  and  the 
Seventies  of  Athens.  The  first  two  are  romances,  describ- 
ing an  ideal  State,  and  the  third  deals  with  the  finances  of 
Athens. 

The  Romans. — There  is  less  to  be  said  about  the  Romans 
than  about  the  Greeks  in  a  history  of  the  evolution  of  eco- 
nomics. Their  economic  life  was  remarkable  and  instructive, 
exhibiting  the  disastrous  consequences  of  slave  labor  and  of 
an  excessive  concentration  of  wealth,  particularly  of  landed 
property.  Pliny  said  the  great  estates,  the  latifu/tdia,  caused 
the  downfall  of  Rome.  The  moral  degeneracy  of  the  empire 
is  fruitful  of  economic  consequences  which  deserve  serious 
attention,  and  among  these  have  already  been  mentioned 
wanton  luxury  and  wide-spread  poverty.  But  while  the  eco- 
nomic institutions  of  the  Romans  and  the  manifestations  of 
their  character  in  their  economic  life  will  repay  investigation 
they  were  not  remarkable  for  independent  thoughts.  Their 
economic  ideas,  like  their  philosophical  doctrines,  were  bor- 
rowed from  the  Greeks,  and  generally  in  the  history  of 
thought  they  occupy  an  inferior  position. 

Cicero,  Seneca,  and  the  elder  Pliny  are  mentioned  among 
the  philosophers  whose  economic  ideas  are  noteworthy,  and 
Cato,  Varro,  and  Columclla  among  the  writers  on  agri- 
culture. 


ECONOMIC  IDEAS  IN  THE  ANCIENT  WORLD.        317 

The  jurists  are,  however,  the  most  important  of  all.  What- 
ever may  be  its  imperfections,  the  Roman  law,  the  corpus 
juris  civilis,  is  the  most  remarkable  legal  system  the  world 
his  ever  seen,  and  for  training  in  careful  and  accurate  state- 
ment is  unsurpassed.  Probably  as  a  training  for  economic 
studies  Roman  law  is  among  the  most  valuable  branches  of 
learning.  It  gives  us  also  invaluable  information  about  the 
economic  institutions  and  measures  of  Rome. 

Christianity. — The  economic  ideas  of  Christianity  come 
next  in  point  of  time,  but  not  next  in  the  order  of  evolution. 
Christianity  seems  to  be  interposed  here  out  of  the  logical 
order,  and  some  will  regard  this  as  a  proof  of  its  divine  ori- 
gin. Suddenly  we  pass  from  weak  and  imperfect  ideas,  many 
of  which  are  now  quite  antiquated,  to  a  sublime  ideal  of  eco- 
nomic life  which  we  are  only  beginning  to  try  to  realize. 
The  most  modern  movement  in  economics,  as  it  is  in  part  a 
return  to  Aristotle,  may  also  be  regarded  as  in  part  a  return 
to  the  teaching  of  Christ,  although  yet  far  from  the  ideal 
which  he  placed  before  men.  Christianity  asserts  the  honor- 
ableness  of  toil,  which  is  the  exact  opposite  of  what  the 
Greeks  and  other  ancients  had  taught.  Christ  and  his  apos- 
tles were  working-men  whom  Aristotle  would  have  deemed 
unworthy  of  citizenship.  This  had,  both  directly  and  indi- 
rectly, tremendous  economic  consequences.  It  has,  among 
other  tilings,  been  a  constant  force  pushing  in  the  direction 
of  the  emancipation  of  labor.  The  doctrine  of  brotherhood 
is  a  powerful  economic  factor.  Let  us  bear  each  other's 
burdens.  Let  each  one  bear  his  own  burden  also.  Let 
us  be  sure  not  to  be  a  burden  to  others,  and  at  the  same 
time  help  others.  This  tends  to  the  conservation  of  human 
energy  and  to  the  development  of  man's  physical  and  other 
powers. 

The  duty  and  the  right  of  general  enlightenment  spring 
from  Christianity.  If  humanity  is  so  precious  as  Christianity 
teaches,  all  the  faculties  of  each  person  should  be  developed 
to  their  utmost.  Education,  with  its  undoubted  economic 
value,  follows  necessarily. 


5/5  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Benevolence,  which  Professor  Sidgwick  in  his  History 
of  Ethics  says  is  the  distinctive  teaching  which  Chris- 
tianity added  to  ethics,  tends  to  the  maintenance  and 
increase  of  efficiency  of  men  and  the  general  productive 
power  of  men. 

The  prohibition  of  luxury  implied  in  the  command  to  love 
our  neighbor  as  ourselves  tends  to  the  preservation  of  nations. 
Self-sacrifice  and  self-control  in  this  as  in  other  directions 
have  high  economic  value. 

The  Middle  Ages.— Little  can  be  added  in  our  bird's-eye 
view  to  what  has  already  been  said  about  economic  specula- 
tion in  this  period.  The  religious  and  moral  aspects  of  eco- 
nomic questions  were  considered  by  the  theologians,  who  ab- 
sorbed the  learning  of  the  time,  and  the  canonical  law,  corpus 
juris  canonici,  contains  what  we  may  regard  as  the  Church 
doctrine  of  practical  law  in  the  Middle  Ages.  The  most  re- 
markable writer,  from  an  economic  stand-point,  as  well  as 
from  other  stand-points,  who  falls  within  this  period  was 
undoubtedly  Thomas  Aquinas,  of  the  thirteenth  century,  the 
study  of  whose  writings  has  recently  been  urged  by  the 
pope.  He  treated  chiefly  two  economic  topics:  just  price, 
justum  pretium,  and  interest.  The  conception  of  just  price 
still  lingers,  and  the  doctrine  that  all  interest  is  sinful 
was  in  the  sixteenth  century  modified  and  became  the  doc- 
trine that  excessive  interest  is  sinful,  and  usury  in  later  times 
has  meant  simply  excessive  interest,  and  not  any  inter- 
est at  all,  as  formerly.  The  teachings  of  Aquinas  in  modified 
form  still  exist  as  a  force  in  our  thoughts  and  in  our  laws. 
Aquinas  wrote  commentaries  on  Aristotle,  and  what  he  taught 
was  Aristotelianism  modified  by  Christianity. 

Professor  Roscher  says  that  the  schoolmen  of  the  Middle 
Ages  asked  in  their  economic  inquiries,  What  is  ethically 
allowable  ?  that  in  the  development  of  political  economy 
we  pass  on  to  the  fiscal  jurists,  who  asked,  What  is  legally 
allowable  ?  that  the  economic  writers  and  teachers  of  the 
early  modern  period,  that  which  we  are  about  to  consider, 
the  mercantilists  and  cameralists,  as  the  teachers  of  economic 


ECONOMIC  IDEAS  IN  THE  ANCIENT  WORLD.        319 

ideas  to  German  office-holders  were  called,  asked,  What 
is  useful  ?  and  that,  finally,  in  most  modern  times  economists 
have  arrived  at  the  insight  that  real  and  permanent  utility 
can  be  attained  only  through  both  the  legally  allowable  and 
the  morally  allowable.  In  other  words,  law,  morality,  and 
utility  must  harmonize.* 

*  Roscher's  Finanzivissenschaft,  sect.  12  of  second  edition. 
14* 


CHAPTER  III. 

ECONOMIC  IDEAS  IN  MODERN  TIMES. 

now  pass  on  to  economic  systems,  which  have  been 
treated  in  the  present  work  more  or  less  fully.  We  can  only 
gather  together  the  threads  and  try  to  form  a  brief  contin- 
uous narrative. 

The  Mercantilists. — The  mercantile  system,  also  called 
Colbertism,  restrictive  system,  and  commercial  system,  ob- 
tained from  the  early  part  of  the  sixteenth  century  until  late 
in  the  eighteenth  century,  and  its  influence  is  still  felt.  Mer- 
cantilism is  not,  strictly  speaking,  the  product  of  a  school  of 
political  economists,  but  rather  the  name  given  to  that  eco- 
nomic policy  of  statesmen  and  to  those  detached  economic 
views  of  writers  which  prevailed  during  this  period.  Most 
prominent  among  the  statesmen  who  were  mercantilists  may 
be  named  Colbert,  of  France,  Frederick  the  Great,  of  Prussia, 
and  Cromwell,  of  England.  Serra,  an  Italian,  early  in  the 
seventeenth  century  presented  a  moderate  and  systematic 
statement  of  their  views  in  a  work  entitled,  A  Jirief  Treatise 
on  Causes  which  make  Gold  and  /Stiver  Abound  where,  there 
are  no  Mines.  Thomas  Man,  in  England,  a  generation  later, 
wrote  a  valuable  treatise  from  the  stand-point  of  the  mercan- 
tilists, called,  En<jl<nnl*$  Treasure  by  Fvrf'tyn  3 rude,  or  the 
Jlalance  of  our  Trade  the  Jfide  of  our  Treasure,  while  Sir 
James  Steuart's  Inquiries  info  the  J^inciples  of  Political 
Economy,  public-lied  in  iTtiT,  may  be  regarded  as  closing  the 
development  of  the  theorv  of  mercantilism.  The  one  idea 
common  to  all  mercantilists  was  this  :  a  nation  ought  to 
strive  to  export  a  quantity  of  goods  of  greater  value  than  it 
imports,  in  order  that  the  difference  maybe  imported  in  gold 
aii'l  jsilver  ami  the  home  supply  of  the  precious  metals  in- 


ECONOMIC  IDEAS  IN  MODERN  TIMES.  321 

creased.  Every  thing  else  was  subordinated  to  this  policy. 
A  favorable  balance  of  trade  was  the  aim,  and  we  call  their 
policy  "  the  balance  of  trade  theory."  Tariffs  were  laid  with 
this  in  view  and  protectionism  was  encouraged  ;  yet  it  was 
something  different  from  modern  protectionism.  It  was  the 
avowed  aim  of  the  mercantilists  to  make  both  agricult- 
ural products  and  labor  cheap,  in  order  that  manufactured 
articles  might  be  cheap  and  a  large  sale  of  them  abroad 
effected.  The  exportation  of  raw  material  was  often  entirely 
prohibited. 

The  Physiocrats. — The  physiocrats  were  the  first  to  pre- 
sent a  rounded-out  system  of  economic  doctrine,  and  may  thus 
be  called  the  founders  of  our  science.  Quesnay,  a  physician, 
Gournay,  a  merchant,  and  Turgot,  the  statesman,  are  their 
three  principal  authors.  The  physiocrats  taught  the  doc- 
trine of  natural  laws  already  expounded,  and  as  a  consequence 
loudly  proclaimed  the  maxim  laissez  fa  ire.  They  taught 
furthermore  that  agriculture  was  the  only  pursuit  which 
added  to  the  wealth  of  the  country,  and  that  additions  to 
wealth  must  come  from  pure  economic  rent.  They  advo- 
cated in  consequence  the  doctrine  that  all  other  taxes  should 
be  abolished  and  all  taxes  levied  on  rent.  All  taxes  must, 
they  thought,  in  the  end  come  out  of  rent  anyway,  and  it  is 
better  that  the  landlord  should  pay  them  at  once  instead  of 
Availing  until  they  have  passed  through  five  or  six  hands  and 
various  profits  have  added  to  their  amount.  The  physiocrats 
were  ardent  champions  of  free  trade. 

Adam  Smith. — Adam  Smith,  of  Scotland,  published  in 
ITTiJ  tlic  most  iniluential  economic  treatise  ever  written.  It 
was  called  The,  W«ilt/>  of  AW/o;/.v.  Adam  Smith  is  usually, 
though  perhaps  without  justice  to  the  physiocrats,  called  the 
father  of  political  economy.  His  writings,  critically  exam- 
ined, are  found  to  be  very  similar  to  those  of  the  physiocrats, 
but  further  developed  and  modified  bv  his  Scotch  training 
and  habit  of  mind.  \Ve  find  in  Adam  Smith  free  trade-  hut 
less  extremely  stated;  luitnez  fair?,  but  with  more  careful 
limitation;  and  the  doctrine  of  natural  laws  and  harmony  of 


322  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

the  working  of  the  selfish  interests,  yet  stated  more  guardedly. 
Adam  Smith,  however,  regards  all  industrial  pursuits  which 
are  concerned  with  material  things  as  truly  productive,  and 
does  not  propose  to  limit  all  taxes  to  rent,  although  when 
one  goes  through  with  the  list  of  taxes  which  he  rejects  it  is 
found  that  not  many  things  save  rent  are  left  to  be  taxed. 

Malthus. — Malthus  published  at  the  close  of  the  last  cent- 
ury his  celebrated  work,  The  Theory  of  Population,  in  which 
he  advocated  the  Malthusian  theory  already  explained.  This 
was  his  main  contribution  to  the  evolution  of  economic 
science. 

Ricardo. — Ricardo's  principal  work  is  called  Principles 
of  Political  Economy  and  T<tx<iti<m.  It  was  published  in 
1817,  and  in  it  Ricardo  elaborates,  although  he  did  riot  orig- 
inate, the  usually  received  doctrine  of  rent,  which  is  the  one 
explained  in  this  book,  and  called  the  Ricardian  doctrine  of 
rent.  Rent,  he  said,  is  due  to  the  niggardliness  and  not  to  the 
bounty  of  nature,  and  otherwise  his  doctrines  had  a  pessi- 
mistic tinge,  as  when  he  teaches  the  natural  diversity  of 
interest  between  wage-receivers  and  profit-makers,  and  the 
antagonism  between  the  interests  of  land-owners  and  all 
other  classes  of  society.  Personally  he  was  a  kind  man, 
and  undoubtedly  sincerely  devoted  to  the  advancement  of 
humanity,  although  he  is  considered  so  hard-hearted  as  an 
economist.  Ricardo  is  remarkable  for  his  extreme  develop- 
ment of  the  abstract  deductive  method,  and  it  is  note- 
worthy that  this  development  is  not  in  the  writings  of  a 
professional  scholar  but  in  the  work  of  one  of  the  most 
successful  bankers  and  brokers  of  his  day.  Socialists  claim 
that  developing  still  further,  or  to  their  logical  outcome, 
the  teachings  of  Ricardo  they  arrive  at  socialism,  and 
Ricardo  ranks  high  among  scientific  socialists.  Ricardo 
illustrates,  in  the  author's  opinion,  the  dangers  of  the  de- 
ductive method. 

John  Stuart  Mill. — John  Stuart  Mill,  who  lived  from 
1806  to  1873,  closed  one  period  in  the  development  of  eco- 
nomic science  and  beiran  another  in  England,  lie  started  as 


-    ECONOMIC  IDEAS  IN  MODERX  TIMES.  323 

a  thorough-going  follower  of  Ricardo,  but  added  so  much  to 
the  Ricardian  doctrines  that  his  treatise  became  largely  new. 
The  old  and  new  do  not  harmonize,  however,  and  the  result  is 
a  work,  one  of  the  most  valuable  of  modern  times,  and  yet  full 
of  inconsistencies.  He  did  the  best  that  could  be  done  with 
the  old  deductive  basis  on  which  he  reared  his  superstructure, 
and  he  showed  the  needs  of  new  methods. 

Roscher,  Knies,  and  Hildebrand. — These  three  young 
Germans  came  forward  in  1850  with  a  new  method,  which 
they  called  the  historical,  and  which  has  elsewhere  been  dis- 
cussed. These  writers  and  their  successors  went  back  of  the 
old  premises,  self-interest,  private  property,  demand  and 
supply,  and  analyzed  and  explained  them.  They  traced  his- 
torical development,  and  Knies  challenged  absolutism  of 
theory  and  substituted  the  doctrine  of  relativism.  Absolut- 
ism of  theory  took  two  forms — perpetualism,  or  the  teaching 
that  a  certain  policy  is  good  for  all  times;  and  cosmopolitan- 
ism, the  teaching  that  a  policy  is  good  for  all  countries. 
Knies  held  that  policies  are  only  relatively  good  and  bad; 
that  policies  must  vary  with  time  and  place.  The  Germans 
thus  took  a  new  attitude  with  respect  to  free  trade  and  pro- 
tection, holding  that  neither  was  absolutely  good  nor  abso- 
lutely bad,  but  that  the  correct  policy  of  a  country  cannot  be 
told  without  an  acquaintance  with  the  particular  circum- 
stances of  the  country. 

While  the  doctrine  of  the  Germans  is  broad  and  liberal  it 
is  at  tin-  same  time  conservative,  for  it  teaches  that  improved 
conditions  must  be  a  growth,  and  must  take  their  root  in  the 
past.  Socialism  comes  rather  from  the  abstract  English 
political  economy  than  from  the  German  political  economy. 
As  English  socialists  themselves  claim,  socialism  went  from 
England  to  Germany  and  has  now  returned  again  to  England. 

We  have  now  the  principal  elements  in  the  evolution  of 
economic  science:  the  early  French,  the  later  English,  and 
the  still  later  German  contribution.  Other  contributions 
have  been  less  important. 

The  present  outlook  for  political  economy  is  most  hopeful. 


324  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

The  activity  is  greatest  in  Germany,  where  Roscher,  Knies, 
and  Ilildebrand  have  had  many  worthy  successors,  of  whom 
Professor  Wagner,  of  Berlin,  is  the  greatest.  We  may  also 
mention  these  cultivated  scholars:  Professors  Colin,  Conrad, 
Sax,  Lexis,  Rttmelin,  Schdnberg,  Nasse,  Schaffle,  Baron  von 
Reitzenstein,  Professor  von  Scheel,  and  Dr.  Eduard  Engel, 
long  at  the  head  of  the  Prussian  Statistical  Bureau. 

The  historical  view  has  sometimes  tended  to  fatalism.  The 
relative  justification  of  what  exists  has  at  times  become 
almost  an  absolute  justification,  and  one  might  think  that 
whatever  has  been  was  at  the  time  the  best,  and  that  mis- 
takes have  not  been  made.  There  has  been  a  reaction  against 
such  extremes.  There  are  different  tendencies  among  Ger- 
man economists,  and,  as  already  stated,  the  term  historical 
school  applies  to  them  only  when  taken  in  a  very  broad  sense. 

German  influence  has  extended  every-where  and  has  stim- 
ulated the  Italians,  who  are  now  active  in  economics  and  do- 
ing some  good  wook.  Among  recent  Italian  economists  may 
be  mentioned  Professors  Cusumano,  Lampertico,  Luzzati,  and 
Cossa. 

England  is  doing  some  good  work.  Professor  T.  E.  Cliffe 
Leslie,  author  of  a  volume  of  Essays  in  Political  and  Moral 
Philosophy,  introduced  German  ideas  ten  or  fifteen  years  ago, 
and  they  have  proved  to  be  good  yeast  in  old  England,  full  as 
ever  of  vigor  and  life.  Arnold  Toynbee  continued  thisinflucnce 
at  Oxford,  and  his  work,  Industrial  Revolution,  is  a  valuable 
contribution  to  economic  thought.  Toynbee  died  a  few 
years  since,  scarcely  thirty  years  of  age.  But  it  is  plain  that 
many  young  Englishmen  have  been  touched  by  him,  and 
they  may  carry  forward  his  scientific  work.  Other  English 
economists  might  be  named  who  take  a  middle  position  be- 
tween the  historical  and  deductive  schools,  like  Professors 
Sidgwick  and  Marshall,  of  Cambridge,  and  the  late  Professor 
Jevons,  of  University  College,  London. 

France  has  done  almost  nothing  for  the  evolution  of 
economic  science  since  the  outbreak  of  the  French  Revo- 
lution of  1789.  Political  economy  has  in  France  degen- 


ECONOMIC  IDEAS  IN  MODERN  TIMES.  325 

crated  into  a  mere  tool  of  the  powerful  classes.  Noth- 
ing is  so  calculated  to  fill  one  with  despair  for  France 
as  French  political  economy.  Rabid  socialism  confronts 
cold-blooded,  selfish  political  economy,  ami  where  is  a  com- 
mon standing-ground  ?  There  is  so  little  economic  liber- 
alism in  no  other  modern  nation.  Happily,  there  are  some 
indications  of  progress  just  at  present,  and  curiously  enough, 
in  view  of  Voltaire's  dictum,  "  Lawyers  are  conservators  of 
ancient  abuses,"  this  refreshing  breath  comes  from  the  law 
school  professors.  Professor  Charles  Gide,  of  the  Faculty 
of  Law  of  Montpelier,  and  prominent  in  good  works,  is  the 
head  of  the  movement.  This  new  movement  is  one  of  the 
hopeful  signs  for  France.  It  is  connected  through  Professor 
Gide  with  organized  efforts  of  the  Protestant  clergy  to  im- 
prove the  condition  of  the  wage-earners  and  to  bring  about 
a  reconciliation  of  social  classes.  Professor  Gide  is  the  au- 
thor of  an  economic  treatise  which  is  now  in  its  second 
edition. 

Belgium  is  in  a  healthier  condition  than  France,  and  two 
living  Belgian  economists  have  made  important  contributions 
to  economic  science.  They  are  Professor  E.  de  Laveleye  and 
Charles  Perin.  Professor  Perm  is  the  author  of  many  works, 
and  treats  present  political  economy  from  the  stand-point  of 
the  Roman  Catholic;. 

Next  to  Germany,  the  greatest  activity  in  economics  is 
now  found  in  the  United  States,  and  there  is  every  reason  to 
expect  valuable  contributions  to  economic  knowledge  from 
Americans  in  the  near  future.  Some  such  contributions  have 
already  been  made.  Harvard  University,  Columbia  College, 
Cornell  University,  the  University  of  Michigan,  Johns  Hop- 
kins University,  and  the  University  of  Pennsylvania  all  have 
schools  of  political  science  or  are  specially  active  in  political 
economv.  Chautauqua  University  is  also  promoting  an  in- 
terest in  economics  in  its  way.  It  provides  a  great  public 
for  an  elementary  treatise  like  the1  present,  and  it  carries  on 
work  in  political  and  social  sciences  in  its  summer  school 
and  in  its  correspondence  school,  both  a  part  of  the  Chau- 


326  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

tauqua  College  of  Liberal  Arts.  Most  of  the  students  in 
the  College  of  Liberal  Arts  have  been  college  graduates,  but 
it  is  hoped  hereafter  to  draw  nearer  together  the  more  pop- 
ular and  the  more  advanced  parts  of  the  Chautauqua  work. 
Chautauqua  University  Extension  will  aid  in  this,  and  in 
this  way  as  well  as  otherwise  help  to  awaken  an  interest  in 
economics. 

Harvard  University  publishes  a  Quarterly  Journal  of  Eco- 
nomics^ and  Columbia  College  a  Political  Science,  Quarterly, 
both  scientific  periodicals  of  a  high  order,  while  the  American 
Economic  Association,  embracing  nearly  all  the  economists 
and  many  of  the  public  men  in  the  United  States,  issues  bi- 
monthly monographs  which  are  now  in  the  fourth  volume. 
Americans  have  every  reason  to  take  a  cheerful  view  of  the 
future  of  political  economy  in  this  country. 

When  we  look  back  upon  the  evolution  of  economic  sci- 
ence, we  find  that  the  most  diverse  elements  have  contributed 
to  the  growth  of  political  economy.  Philosophy  in  France, 
Germany,  and  England  has  contributed  elements;  practical 
statesmanship  in  every  country  has  added  important  elements; 
shrewd  business  men  of  large  affairs  have  been  among  the 
prominent  economists,  and  in  addition  our  science  claims 
among  its  promoters  some  of  the  ablest  scholars  of  the 
past  hundred  years.  Political  economy  is  doubtless  still  a 
young  science,  and  as  such  is  incomplete;  but  surely  those 
who  sneer  at  it  as  a  "  mere  theory "  do  but  reveal  their 
own  ignorance. 


Tngram's  Ifixtory  of  P<>lit!<-<tl  K-onomy  is  the  best  outline 
in  the  English  language  of  the  history  of  our  science. 


PART  VIII. 

A    EEW    SUGGESTIONS    FOR    STUDY   AND 
COURSES    OE    READING. 


A    FEW    SUGGESTIONS    FOR    STUDY    AND    COURSES    OF 
READING. 

Suggestions. — The  suggestions  for  study  must  be  very 
general,  as  they  must  apply  to  so  many  readers  in  so  many 
different  situations. 

It  may  be  said  to  all  that  they  should  form  habits  of  care- 
ful observation,  and  supplement  what  they  have  gathered  from 
this  book  by  inquiry,  reading,  and  reflection.  Those  who  can 
ought  gradually  to  get  together  a  little  working  library  of 
economic  works,  and  the  books  herein  mentioned  \vill  consti- 
tute a  very  good  economic  library.  Few  will  be  able  to  buy 
all,  but  many  can  be  picked  up,  one  at  a  time,  in  a  few  year's. 
Circles  and  schools  can  by  co-operative  effort  secure  a  larger 
library  than  can  ordinarily  be  done  by  the  isolated  reader. 
Of  course,  when  one's  means  are  ample  the  problem  is  a  very 
simple  one. 

Circles  and  schools  should  call  in  the  assistance  of  business 
and  professional  men  and  practical  politicians  from  time  to 
time.  When  banking  is  discussed  it  will  not  be  difficult  to 
find  a  banker  who  will  be  able  to  explain  more  fully  bank 
notes,  checks,  drafts,  and  bills  of  exchange,  perhaps  exhibit- 
ing blanks  or  canceled  paper. 

Similarly,  when  taxation  is  being  studied,  local  tax  assess- 
ors and  tax  gatherers  should  be  invited  to  describe  the  actual 
workings  of  the  system  in  the  administration  of  which  they 
are  practically  engaged.  Let  readers  examine  the  different 
kinds  of  money  in  circulation,  and  not  rest  content  until  they 
understand  their  difference.  Water-works,  gas-works,  public 
roads  are  to  be  studied,  and  private  compared  with  public 
management  ;  and  various  kinds  of  fanning,  fanning  on  a 
larije  scale  and  on  a  small  scale,  are  worthv  of  observation, 
and  practical  fanners  can  tell  what  they  know  about  the 
merits  of  different  svstems. 


330  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Courses  of  Beading. — 1.  The  author  begs  to  mention  his- 
own  works  first,  not  because  they  are  superior  to  other  works, 
or  even  equal  to  them,  but  because  for  those  who  take  an 
extended  course  of  study  there  is  an  undoubted  advan- 
tage in  first  mastering  one  author  and  then  passing  on  to 
others.  Besides,  thoughts  which  could  not  be  fully  elabo- 
rated in  this  work  will  be  found  further  explained  in  his  other 
works. 

At  the  same  time  the  author  will  frankly  confess  that  he 
wants  no  one  to  accept  his  mere  ipse  dixit,  and  that  he 
would  consider  this  work  a  failure  if  it  did  not  kindle  a 
desire  to  read  the  works  of  other  authors.  The  author  has 
written  Problems  of  To-day,  French  and  German  Socialism, 
Labor  Movement  in  America,  Taxation  in  American  States 
and  Cities,  and  if  any  one  should  care  to  read  all  he  would 
recommend  their  perusal  in  the  order  named.  If  only  one 
work  is  read  let  it  be  Problems  of  To-day  ;  if  two,  that  and 
Taxation  in  American  States  and  Cities.  If  another  book  is 
desired  as  a  text-book  in  school  or  college  as  supplementary 
to  this,  let  it  be  Taxation  in  American  States  and  Cities, 
if  time  is  sufficient  for  so  large  a  work,  otherwise  Problems 
of  To-day.  Those  who  are  chiefly  interested  in  labor  prob- 
lems will  instead  take  Labor  Movement  in  America,  or,  if 
time  is  short,  French  and  German  Socialism. 

2.  If  it  is  desired  to  pass  from  this  book  immediately  to 
those  of  other  authors,  the  following  course  is  recommended: 
Kirkup's  Inquiry  into  Socialism;  E.  J.  James's  Relation  of 
the  Modern  Municipality  to  the  Gas  Supply,    II.  C.  Adams's 
Relation  of  the  State  to  Industrial  Action,  II.  C.  Adams's 
Public  D<bts. 

3.  Having  taken  1  or  2,  comparative  studies  in  the  follow- 
ing works  are  recommended  :  John  Stuart  Mill's  Principles  of 
Political  Economy;  F.  A.  Walker's  Political  Economy  (large 
edition);   J.    B.  Clark's  Philnsnpl,;/  of   Wealth.     Make  Mill 
the  basis,  read  his  work  and  compare  his  theories  with  those  of 
Clark  and  Walker.     This  might  be  extended  by  a  comparison 
of  views  in  Newcomb's  Political  Economy. 


STUDY  AXD  COURSES  OF  HEADING.  331 

4.  Tariff  Course.— R.  T.   Ely's   Problems  of  To-day; 
R.   E.  Thompson's     Protection    to  Home  Industry;  F.  W. 
Taussig's   Tariff  History  of  the   United  States;    Frederick 
List's  National  System  of  Political  Economy;  S.  N.  Patten's 
Premises  of  Political  Economy;  Henry  George's  Protection 
and  Free  Trade. 

5.  Money. — F.  A.  Walker's  Money ;  or,  Money,   Trade, 
and  Industry;  Stanley  Jevons's  Money  and  the  Mechanism 
of  Exchange;   Laughlin's   History  of  Bimetallism   in  the 
United  States  ;  S.  Dana  Horton's  The  Silver  Pound. 

G.  Banking. — Knox's  Report  as  Comptroller  of  the  Treas- 
ury in  United  States  Finance  Reports  for  1875-76;  J.  S.  Gil- 
bart's  History,  Principles,  and  I*ractice  of  Hanking  ;  Walter 
Bagehot's  Lombard  Street.  For  law,  J.  T.  Morse's  Banks 
and  Banking. 

7.  Finance.— II.  C.  Adams's  Public  Debts;  R.  T.  Ely's 
Taxation  in  American  States  and  Cities;  Cossa's  Taxation, 
its  Principles  and  Methods ;  A.  J.  Wilson's  The  National 
Budget,  the  National  Debt,  Taxes  and  Hates  ;  T.  II.  Farrer's 
The  State  in  its  Relation  to  Trade  ;  Woodrow  Wilson's  Con- 
gressional (rovcrnment. 

S.  Socialism. —  Ed \vard  Bellamy's  Looking  Backward; 
R.  T.  Ely's  French  ami  (Herman  Socialism. ;  Kirkup's  ///- 
(jitiry  into  Social f tun;  T.  Edwin  Browne's  Studies  in  Mod*  rn 
Socialism  and  the  Labor  Problem  ;  Rae's  Contemporary  So- 
cialism ;  Emil  de  Laveleye's  Socialism,  of  To-<bnj  ;  Gron- 
lund's  Co-operalii'e  Commonwealth;  Marx's  Capital,  often 
called  the  Dible  of  socialism.  For  American  Socialism  see 
Elv's  Labor  Jloremint  in  America. 

9.  Anarchism. —  IVoudhon's  What  is  Property  ?  and  other 
works  translated  l»y  I>enj  iinin  R.  Tucker;  Prince  Krapct- 
kiiu-'s  articles  in  the  XimtccntJi  (\ntttry,  Februarv  and  Au- 
U'ii-1.  lss7,  April  and  Octoher,  lsss;  Walker's  1*0! ideal 
/;'<•"//»,// >/ ;  article  "Socialism"  in  Knci/clopfrdia  Itritannicn; 
article  u  Shall  \Ve  Mu/./.lc  ihc  Anarchists,"  l.y  II.  ('.  Adams, 
in  I-*n,-nm,  vol.  i,  p.  44."),  September,  isst). 

In.   Rent.  —  Henry   George's   I'.-oyrLSs  and  Pui'crty  and 


332  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Social  Problems  ;  Walker's  Land  and  its  Rent ;  J.  B.  Clark's 
Capital  and  its  Earnings. 

Other  works  needed  for  a  fairly  good  economic  library: 
Publications  of  the  American  Economic  Association,  com- 
plete; Political  Science  Quarterly,  complete  ;  Quarterly 
Journal  of  Economics,  complete;  Bradstreefs  current  num- 
bers, published  in  New  York;  Banker's  Magazine,  published 
in  New  York;  Walker's  The  Wages  Question;  Bolles's  Fi- 
nancial History  of  the  United  States;  Lalor's  Cyclopaedia  of 
Political  Science ;  Clark  and  Giddings's  The  Modern  Distrib- 
utive Process;  Washington  Gladden's  Applied  Christianity  ; 
Life  and  Work  of  the  Seventh  Earl  of  Sftaftesbury,  by  llod- 
der,  unabridged;  Helen  Campbell's  Prisoners  of  Poverty ; 
Report  of  the  Industrial  Remuneration  Conference,  London, 
1885;  Arnold  Toynbee's  Industrial  Revolution;  Reports  of 
the  State  Bureaus  of  Labor  Statistics  and  of  the  National 
Department  of  Labor. 

German  "Works. — Desirable  for  those  who  read  German: 
— Schonberg's  Handbuch  der  Politischen  Oekonomie  2te  Aufl. ; 
the  economic  treatises  of  Wagner,  Roscher,  Cohn,  Knies. 
Magazines:  JaJirbiicher  filr  Nationalitkonomie  und  Statis- 
tik ;  Jahrbuch  filr  Gesetzgebung,  Verioaltuny  und  Volks- 
wirthschaft  (Schmoller's). 

French  Works. — Gide's  Principes  cTeconomie  politique, 
2e  ed. ;  Baudrillart,  Ilistoire  du  luxe;  Leroy-Beauliou's 
Traite  de  la  science  des  finances;  Emil  do  Laveleye's 
economic  writings  ;  Charles  Perin's  economic  writings  ; 
Sismondi's  Nouveau  princlpes  d^econoinie  politique.  Maga- 
zines: Revxe  d'economie  politique;  the  Journal  dcs  Et-ono- 
mistes  is  the  organ  of  the  old  ultra-conservative  school  of 
French  economists. 


APPENDIX. 

I.  QUESTIONS  AND  EXERCISES. 
II.  BIBLIOGRAPHY. 


QUESTIONS  AND  EXERCISES, 


DEFINE  the  following  terms :  Sociology  ;  economic  life  ;  political  econ- 
omy ;  the  State;  freedom  of  contract;  utilities;  economic  goods ;  wealth; 
wants;  luxuries;  capital;  exchange;  value;  price;  demand  and  supply; 
cost  of  production ;  money;  bimetallism  ;  credit;  property;  interest;  capi- 
talization; rent;  standard  of  comfort;  margin  of  cultivation;  socialism; 
anarchism. 

What  are  the  departments  of  social  life,  and  what  is  the  relation  of  the 
economic  to  the  other  departments? 

It  has  been  estimated  that  the  annual  production  of  wealth  in  the  United 
States  is  about  $10,000,000,000.  Examine  all  the  elements  which  must 
enter  into  such  an  estimate. 

What  are  the  physical  characteristics  of  your  own  locality?  How  have 
they  influenced  iis  economic  life?  In  what  ways  do  you  think  they  will 
affect  its  future  economic  life  ?  In  what  ways  have  the  character  of  the  peo- 
ple in  your  community  been  shaped  by  their  economic  life  ? 

What  is  meant  by  serfdom?  What  is  the  difference  between  slavery  and 
serfdom  'i 

Is  there  justification  in  the  term  "  wage-slavery."     Explain. 

Show  the  importance  of  studying  the  economic  institutions  of  a  people 
from  the  stand-point  of  their  historical  development. 

What  aro  the  different  economic  stages  in  the  life  of  a  people,  viewed 
from  the  stand-point  of  production  and  of  transfers  of  goods?  Describe  and 
give  illustrations  of  each. 

Describe  the  village  community. 

Explain  the  essential  difference  between  the  economic  system  of  the 
Mi'ldle  Ages  ;md  thai  of  the  present  lime. 

Describe  four  of  the  main  features  of  modern  economic  life  which  give 
rise  to  the  present  economic  problems. 

What  two  kinds  of  deterioration  may  there  be  in  the  economic  condition 
of  i  he  masses? 

What  are  the  principal  menus  .II-O'MSIMI  tor  uniting  labor  nnd  capital? 

What  are   the    relations  of   modern  (."•uiioiinc   l.fe   tolreedom?     In  what 
important  respect  has  the  n;»fir?  o:  ri-sirictivn  ln\vs  been  changed  i      Wha* 
are  the  arlvnntnges  and  di*;id''Hn'aze!-  or  'reedom    r.   nd'istrv  : 
15 


333  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

What  has  been  the  development  of  laws  with  respect  to  the  industry 
of  agriculture?  Have  restrictions  increased  or  decreased?  been  mnde 
special  or  general  ?  Illustrate.  With  respect  to  the  liquor  industry?  The 
siiipping  industry? 

What  government  activities  can  you  name  which  were  formerly,  in  this 
or  other  countries,  ancient  or  modern,  delegated  to  individuals  or  private 
companies,  and  what  have  been  the  reasons  which  led  to  the  adoption  of  the 
present  system  7 

Slate  and  criticise  the  contract  theory  of  government. 

What  are  the  principal  reasons  why  government  should  own  and  manage 
forests  ? 

Show  how  political  economy  is  simpler  than  private  economy. 

Show  the  difference  between  private  and  public  interests. 

Why  must  we  have  an  ethical  ideal  in  our  studies  in  political  economy  ? 

Describe  the  three  classes  of  definitions  of  political  economy;  show  their 
historical  development,  and  give  examples  of  each. 

Into  what  main  parts  miiy  political  economy  be  divided? 

What  aro  the  different  methods  of  economic  research  ?  Describe  each. 
Wuich  are  most  important?  What  is  the  origin  and  character  of  the  his- 
torical school? 

What  is  usually  meant  by  the  term  "  natural  law  ?  " 

Examine  the  following:  "  The  practical  or  unscientific  economist  is  one 
who,  rinding  the  river  to  wind  about  in  all  directions,  denies  or  ignores  any 
special  tendency  in  its  waters  to  approach  the  sea.  and  regards  the  idea  of 
those  waters  being  urged  forward  by  any  one  single  force,  like  that  of  gravi- 
tation, as  entirely  illusory." — yen-comb. 

What  claim  has  political  economy  to  the  name  of  science? 

To  what  other  sciences  is  political  economy  closely  related,  and  in  what 
way? 

What  place  does  economic  science  occupy  wiih  regard  to  the  laws  of  the 
physical  universe  ? 

Give  illustrations  of  the  influence  of  the  religious  life  upon  the  economic 
life  of  a  people.  Show  so'ne  economic  causes  and  results  in  religious  ref- 
ormations; fur  example,  those  of  Luther,  Wiclif  and  the  Lollards,  Moham- 
med, and  others. 

What  are  the  principal  economic  t>  achings  of  Moses?  of  Isaiah  ?  of 
Jesus?  Show  the  growth  of  economic  civilization  among  the  Jews  as  ex- 
emplified by  their  teachings. 

Does  religion  become  more  or  Ic-s  important  with  the  growth  of  indus- 
trial civilization  ?  Show  how  this  is.  Give  historic  proofs.  Proofs  from 
your  own  observation. 

Can  you  mention  any  subjects  belonging  to  the  field  of  political  economy 
which  are  not  also  within  the  proper  domain  of  legislation  ? 

What  are  economic  goods?     What  is  wealth? 


QUESTIONS  AND  EXERCISES.  SS7 

What  is  the  relation  between  production  and  consumption  as  divisions  of 
political  economy  ? 

What  are  the  causes  for  apparent  overproduction  ? 

Examine  and  criticise  the  following:  ''Generally,  and  with  one  single 
exception,  that  of  food,  there  may  be  an  excess  of  products ;  and  univer- 
sally, or  inclusive  of  food  and  of  all  things  else,  there  may  be  an  excess  of 
productive  effort." — Chalmers. 

What  are  the  three  motives  of  economic  activity,  and  how  do  they  sup- 
plement one  another  ?  Among  what  peoples  is  self-interest  the  only  eco- 
nomic motive  ? 

What  are  the  effects  of  luxurious  expenditures  upon  the  rich?  on  the 
working  class? 

When  is  expenditure  in  luxuries  justifiable  ?  What  is  the  difference  be- 
tween saving  and  hoarding  ? 

Show  fallacies  in  the  .statement  that  expenditures  for  liquors  furnish  a 
market  for  the  fanner's  produce. 

What  arc  the  different  factors  in  production  ?  Give  examples  of  indus- 
tries where  the  different  factors  are  represented  by  different  persons. 

Which  of  the  four  factors  in  production  is  most  benefited  by  the  extension 
of  machinery  and  division  of  labor? 

What  is  meant  by  land?  What  services  does  it  rer/der  to  production? 
What  is  the  difference  between  rent  and  profits?  Rent  and  interest? 

What  are  the  checks  on  population  among  savages?  Among  civilized 
people? 

How  does  capital  arise?  What  defense  has  the  capitalist  for  receiving 
interest?  Is  credit  capital?  Is  money  capital?  Distinguish  between  eco- 
nomic goods  and  capita,!. 

Are  the  following  tilings  capital — social  or  individual:  City  lots,  farms, 
good  eyesight.,  a  dwelling  house,  an  actor's  diamonds,  a  theater,  bread  and 
butter,  railroad  stock,  promissory  notes,  Fortress  Monroe,  the  White  House, 
Lake  Kile,  custom  house,  church  taxes,  lottery  ticket.  United  Suites  green- 
hacks,  "good-will"  of  a  business? 

Define  tixed  and  circulating  capital.  To  which  Ha<s  do  the  following  be- 
loug:  Calico  on  the  shelves  of  the  merchant,  a  pick-ax,  cash,  steamboat, 
horse,  iron  ore  ? 

Describe  the  functions  of  the  entrepreneur.  Show  his  relations  to  tho 
principle  of  division  «(  labor. 

What  are  the  advantages  of  division  of  labor?  Disadvantages?  Why 
can  not  the  division  of  labor  be  carried  out  so  well  in  agriculture  as  in  manu- 
factures? 

What  means  can  you  suggest  to  lessen  tho  evils  of  an  extreme  division  of 
la  I -or? 

Show  the  way  in  which  increasing  division  of  labor  increases  the  impor- 
tance of  natural  monopolies  in  the  economic  life  of  a  people. 


838  AX  INTRODUCTION  TO  POLITICAL  ECONOMY. 

How  does  the  increasing  division  cf  labor  affect  the  growth  of  cities? 
What  is  the  function  of  cities  with  regard  to  the  mutual  dependence  of  man 
upon  man  ? 

Show  how  increased  division  of  labor  has  made  female  and  child  labor  im- 
portant problems. 

What  is  the  relation  between  utility  and  value  ? 

"  Iron  is  more  useful,  but  less  valuable,  than  gjld."  Point  out  the  fallacy 
and  show  its  bearing  upon  the  theory  of  value. 

Under  what  conditions  does  value  depend  upon  cost  of  production,  and 
how  is  this  dependence  brought  about? 

Determine  as  nearly  us  you  can  what  proportion  of  the  industrial  field  is 
subject  to  monopoly,  and  therefore  outside  the  limits  of  competition. 

Explain  the  following :  "  High  or  low  wages  or  profit  are  the  causes  of 
high  or  low  prices;  high  or  low  rent  is  the  effect  of  it.  It  is  because  high 
or  low  wages  or  profit  must  be  paid  in  order  to  bring  a  particular  commodity 
to  market  that  its  price  is  high  or  low.  But  it  is  because  its  price  is  high 
or  low,  a  great  deal  more,  or  very  little  more,  or  no  more,  than  what  is  suf- 
ficient to  pay  these  wages  and  profit,  that  it  affords  a  high  rent  or  low  rent, 
or  no  rent  at  all." — Adam  SmiOi. 

'•General  low  wages  do  not  cause  low  prices,  nor  high  wages  high  prices." 
Explain. 

The  State  of  New  York  prohibits  its  penitentiary  convicts  from  working. 
Does  this  increase  the  opportunities  or  remuneration  for  labor  throughout 
the  State? 

What  is  meant  by  the  expression  "  fair  price?" 

Name  and  describe  the  three  conceptions  of  money. 

What  functions  are  performed  by  money? 

Docs  the  value  of  money  depend  upon  the  cost  of  production  or  upon  sup- 
ply and  demand  ? 

What  were  the  ideas  of  the  Mercantilists  with  regard  to  money  ? 

Doe;i  the  value  of  money  vary  inversely  as  its  quantity? 

What  :ire  the  qualities  of  gold  and  silver  which  make  them  pre-eminently 
fit  for  money?  Which  quality  is  the  most  important?  What  articles  havo 
been  used  for  money?  When  is  it  a  disadvantage  to  a  country  to  import 
gold? 

State  all  the  effects  which  follow  in  a  country  from  an  increase  or  decrease 
in  the  quantity  of  money. 

What  effects  would  follow  if  the  gold  in  the  United  States  were  doubled: 
on  bondholders?  on  importers?  on  bankers?  on  farmers?  on  wage-earn- 
ers ? 

Is  the  statement,  ''Bad  money  drives  out  the  good,"  true  to  the  facts?  If 
ii"t.  slate  it  better. 

What  are  the  conditions  to  bo  observed  in  fixing  the  amount  of  money 
•which  a  countrr  should  have  in  circulation  ? 


QCESHOXS  AXD  EXERCISES.  3X9 

What  effects  would  follow  if  the  national  greenbacks  were  withdrawn 
from  circulation  ? 

Examine  the  following:  "  The  influx  of  money  into  a  progressive  country 
is  one  of  the  most  powerful  promoters  and  increasers  of  production.  To 
money  (as  to  labor)  '  time  is  money.'  Whoever  possesses  it  must  seek  au 
investment  for  it  or  lose  his  profits.  When  it  is  plenty  all  sorts  of  productive 
work  are  stimulated  ;  labor  is  the  master  of  capital,  and  industrial  enter- 
prise gains  a  more  than  proportionally  larger  return  for  its  outlay,  witli 
every  increase  of  the  outlay.  Labor  becomes  more  productive  as  the  instru- 
ment of  association  is  more  universally  accessible.  Its  price  rises  while 
that  of  commodities  falls." — Thompson. 

Give  different  definitions  of  credit.  What  are  the  elements  of  a  credit 
transaction?  Name  and  describe  the  different  instruments  ol  credit 

What  are  the  advantages  of  credit  ?     Disadvantages  ? 

What  is  the  economic  value  of  an  extension  of  credit? 

What  are  the  different  motives  which  have  led  nations  to  regulate  inter- 
national commerce  ? 

During  the  years  18GO-73  the  imports  of  the  United  States  exceeded  tho 
exports,  and  from  1871!  to  1883  the  exports  exceeded  the  imports.  What 
inferences  are  possible  with  regard  to  the  two  periods? 

"  We  want  a  larger  foreign  commerce  in  order  to  afford  a  vent  for  our 
surplus  produce."  Criticise  this  statement. 

What  are  the  reasons  for  the  apparent  credibility  of  the  balance  of  trade 
theory?  Why  do  bankers  look  with  more  distrust  upon  shipments  of  gold 
to  Europe  than  upon  larger  shipments  to  distant  parts  of  our  own 
country  ? 

Examine  and  criticise  the  following:  '•  The  ordinary  means  to  increase  our 
wealth  and  treasure  [gold  and  silver]  is  by  foreign  trade;  wherein  we  must 
observe  this  rule :  to  sell  more  to  strangers  yearly  than  we  consume  of  theirs 
in  value.  For  suppose  that  when  this  kingdom  is  plentifully  served  with 
tho  clot!),  lead,  tin,  iron,  fish,  and  other  native  commodities,  we  do  yearly  ex- 
port the  surplus  to  foreign  countries  in  tho  value,  of  twenty-two  hundred 
thousand  pounds,  by  which  means  we  arc  enabled  beyond  tho  sons  t>  buy 
and  bring  in  foreign  wares  for  our  use  and  consumption  to  the  value  of 
twenty  hundred  thousand  pounds.  By  this  order  duly  kept  in  our  trading 
we  may  rest  assured  that  the  kingdom  shall  be  enriched  yearly  two  hundred 
thousand  pounds,  which  must  be  brought  to  us  in  so  much  treasure  [gold 
and  silver),  because  that  part  of  our  stock  which  is  not  returned  to  us  in 
wares  insist  necessarily  be  brought  homo  in  treasure." — Thm/nis  J/MV, 
1G4U. 

Examine  and  criticise  the  following  quotation  from  Adam  Smith,  Wealth 
of  \titimix.  Hook  II,  chap,  v:  "The  cnpital  which  is  employed  in  purchas- 
ing in  one  part  of  the  country,  in  order  to  sell  in  another  tho  produce  of 
the  industry  ol  that  country,  generally  repluccs,  by  every  such  operation, 


340  A2f  INTRODUCTION  TO  POLITICAL  ECONOMY. 

two  distinct  capitals,  that  had  both  been  employed  in  the  agriculture  or 
manufactures  of  that  country,  and  thereby  enables  them  to  continue 
that  employment.  .  .  .  When  both  are  the  produce  of  domestic  industry, 
it  necessarily  replaces,  by  every  such  operation,  two  distinct  capitals, 
which  had  both  been  employed  in  supporting  productive  labor,  and  thereby 
enables  them  to  continue  that  support.  .  .  .  The  capital  employed  in 
purchasing  foreign  goods  for  home  consumption,  when  this  purchase  is 
made  with  the  produce  of  domestic  industry,  replaces,  too,  by  every  such 
operation,  two  distinct  capitals;  but  one  of  them  only  is  employed  in  sup- 
porting domestic  industry.  .  .  .  Though  the  returns,  therefore,  of  the 
foreign  trade  of  consumption  should  be  as  quick  as  those  of  the  home 
trade,  the  capital  employed  in  it  will  give  but  one  half  of  the  encourage- 
ment to  the  industiy  or  productive  labor  of  the  country.  .  .  .  But  the 
returns  of  the  foreign  trade  of  consumption  are  very  seldom  so  quick  as 
those  of  the  home  trade.  The  returns  of  the  home  trade  generally  come  in 
before  the  end  of  the  year,  and  sometimes  three  or  four  times  in  the  year. 
The  returns  of  the  foreign  trade  of  consumption  seldom  come  in  before  the 
end  of  the  year,  and  sometimes  not  till  after  two  or  three  years.  A 
capital,  therefore,  employed  in  the  home  trade  will  s<  me  times  make 
twelve  operations,  or  be  sent  out  and  returned  twelve  times  before  a  capi- 
tal employed  in  the  foreign  trade  of  consumption  h;is  made  one.  If  the 
capitals  are  equal,  therefore,  the  one  will  give  four-and-twenty  times  more 
encouragement  and  support  to  the  industry  of  the  country  than  the 
other." 

State  the  advantages  to  a  country  of  foreign  commerce. 

Examine  the  following,  which  has  been  offered  as  an  argument  for  pro- 
tection: "After  I860  the  business  of  the  country  was  encouraged  and  de- 
veloped by  a  protective  tariff.  At  the  end  of  twenty  years  the  total 
property  of  the  United  States  as  returned  by  the  census  of  1880  amounted  to 
the  enormous  aggregate  of  $44.000,000.000.  Thirty  thousand  millions  of 
dollars  had  been  added  during  these  twenty  years  to  the  permanent  wealth 
of  the  nation." 

Define  property.  What  is  the  meaning  of  the  definition,  ''jus  utendi 
vel  nbutcndi  re."  What  limitation  is  there  always  to  the  right  of  property? 
What  two  elements  enter  into  property? 

Show  the  growth  of  the  right  of  private  property  through  the  succes- 
sive economic  siag<;s. 

What  elements  enter  into  interest?  What  determines  the  rate  of  in- 
terest ? 

"The  increase  of  stock  [capital],  which  raises  wages,  tends  to  lower 
profit." — Adam  Smith.  Is  this  correct? 

Explain  the  difference  between  capital  and  capitalization. 

What  influence  upon  the  selling  price  of  bonds  and  land  has  a  fall  in  the 
rale  of  interest?  A  rise  in  the  rate  of  interest? 


QUESTIONS  AXD  EXERCISES.  341 

On  what  does  the  rate  of  interest  depend?  Why  is  interest  higher  in 
Chicago  than  New  York  ? 

If  prices  are  high  will  interest  be  high?  If  the  money  in  the  United 
States  were  doubled  would  the  rate  of  interest  rise? 

"That  interest  does  not  depend  upon  the  productiveness  of  labor  and 
capital  is  proved  by  the  general  fact  tliat  where  labor  and  capital  are  n;ost 
productive  interest  is  lowest.  That  it  does  not  depend  reversely  upon 
wages  (or  the  cost  of  labor),  lowering  as  wages  rise  and  increasing  as  wages 
fall,  is  proved  by  the  general  faet  that  interest  is  high  when  ami  where 
wages  are  high,  and  low  when  and  where  wages  are  low."  Is  this  true? 

Does  a  fall  in  the  rate  of  interest  mean  that  the  total  interest  paid  luis 
decreased  cither  absolutely  or  relatively  to  the  total  amount  product  d? 

Does  the  tendency  of  profits  to  a  minimum  depend  on  a  general  fall  in 
prices?  If  so,  why?  If  not,  why  not? 

Ricardo's  law  of  industrial  progress:  ''In  an  advancing  community  rent 
must  rise,  profits  fall,  and  wyges  remain  about  the  same."  Explain  ihis. 

•'  Interest  and  wages  depend  on  the  margin  of  cultivation,  tailing  as  it 
falls  and  rising  as  it  rises.1'  Explain  this. 

What  does  Ricardo  mean  by  saying  that  the  niggardliness  ol'  nature  id 
the  cause  of  rent?  Is  this  statement  perfectly  accurate? 

Define  rent.     What  is  the  difference  between  rent  and  interest? 

Would  the  land  of  a  country  pay  rent  if  it  were  all  of  uniform  fertility? 

What  has  been  the  effect  of  railroad-buiklmg  upon  rents  in  ti.c  United 
States? 

Does  increase  in  rent  cause  increase  in  the  price  of  food? 

"No  reduction  would  t;ikc  place  in  price  of  corn  although  l:indlorxU 
forego  the  whole  of  their  rent." 

'•Rent  does  not  enter  at  all  into  tho  cost  of  production. ''     Kxplain. 

''High  wages  or  protits  do  not  make  general  high  prices.  They  affect 
prices  only  inasmuch  as  different  articles  have,  as  elements  of  their  cost, 
wages  and  protits  in  different  proportions."  Explain. 

Wacres  of  bakers  in  New  York  average  seven  dollars  per  wook :  in 
Chicago,  twelve  dollars  n  wook  ;  of  carpenters  in  Now  York,  fourteen 
dollar*  a  week:  in  rhion.ro.  sixteen  dollars  a  wook.  Kxplain  any  e.m.ses  of 
tlieso  dilli-ronees  with  which  you  may  bo  familiar. 

Distinguish  between  rue  of  wages  and  price  of  labor. 

Define  iho  ••  standard  of  life."  Of  what  importance  is  it  as  an  poono'iiio 
prinoipl.-?  In  what  ways  docs  a  high  or  low  j  rice  of  food  affect  the 
general  rat'-  of  waires  ? 

To.  what  kinds  of  wo.'k  is  piece-work  adapted?  What  an-  the  advantage* 
and  disadvantages  of  piece-work? 

Wages  of  women  are  not  commonly  equal  to  those  of  men  for  tho  Bam* 
work  performed.  Why  is  this  so?  Is  it  "fair?" 

Wliv   should  thp  economist  discuvi  public  education  T 


342  A.V  INTRODUCTION  TO  POLITICAL  ECONOMY. 

Examine  the  probable  effects  upon  the  production  and  distribution  of 
wealth  of  universal  education. 

"Can  every  child  by  education  become  a  great  man  or  woman?" 

What  can  we  hope,  fiom  our  stand-point,  for  the  ordinary  man  or 
woman  ? 

What  are  the  differences  in  organiaition  between  trades  unions  and 
Knights  of  Labor,  and  how  have  they  influenced  each  other? 

What  are  the  differ,  nt  kinds  of  co-operation  ?  What  are  the  advantages 
of  productive  co-operation  ? 

What  are  the  four  characteristic  features  of  socialism  ?  How  does 
socialism  differ  from  anarchism  ? 

What  is  meant  by  profit-sharing?  Capital-sharing?  Co-operation? 
Socialism  ? 

What  are  the  characteristics  of  natural  monoplies? 

It  is  sometimes  said  that  State  management  of  natural  monopolies  is 
socialistic.  Examine  and  criticise  this  statement. 

Examine  and  criticise  the  following:  "There  is  no  more  reason  why  the 
government  should  operate  the  telegraph  than  run  the  flour  mills — less,  in 
fact,  for  every- body  uses  Hour,  while  it  is  doubtful  if,  even  three  per  cent,  of 
the  people  use  the  telegraph." 

\Vhal  conditions  justify  the  State  in  engaging  in    industrial   enterprises? 

What  four  advantages  are  claimed  from  public  ownership  and  manage- 
ment of  natural  monopolies? 

In  what  ways  will  the  following  different  kinds  of  expenditure  of  income 
affect  the  wealth  of  the  United  States,  and  the  working  classes:  Purchase 
of  United  Siates  bonds;  employment  of  American  servants;  traveling 
abroad  ;  purchase  of  American  pictures  :  production  of  manufactured  goods  ? 

Criticise  the  following  statement:  ''Blessed  is  the  country  where  the 
ricli  are  extravagant  and  the  poor  are  economical." 

Examine  the  following:  There  is  a  ''beautiful  compensation,  by  which 
the  excessive  love  of  p-esent  enjoyment  on  the  pant  of  spendthrifts,  when 
carried  to  the  length  of  abridging  their  capital,  docs,  by  its  effect  on 
supply  and  price,  call  fo:ah  a  counter-active  force  in  the  opposite  direction 
— by  inviting  others,  in  whom  the  love  of  gain  predominates,  the  more  to 
ext'Tid  their  operation",  whether  in  trade  or  husbandry." — Chalmers. 

How  does  the  consumption  of  luxuries  retard  the  industrial  progrc.-ss  of 
a  community  ? 

What  is  public  finance? 

How  can  methods  of  taxation  be  improved? 

What  is  the  justification  of  taxation? 

Show  how  society  takes  part  in  production  in  your  community. 

Examine  carefully  ami  criticise  the  following:  "Daily  purchases  of 
United  States  Government  bonds  were  commenced  on  the  23d  of  April, 
Itisd.  By  this  plan  bonds  of  the  government  not  yet  due  have  been  pur- 


QUESTIONS  AXD  E.YERriSES.  343 

chased  .  .  .  amounting  to  $94,700,400,  tlio  premium  paid  thcroon 
amounting  to  $17,508,613  08.  The  premium  added  10  the  principal  of  these 
bonds  represents  an  investment  yielding  about  two  per  cent,  interest  for  the 
time  they  still  had  to  run;  and  the  saving  to  the  government  represented 
by  the  difference  between  the  amount  of  interest  at  l\vo  per  cent,  upon  tlio 
sum  paid  for  principal  and  premium,  and  what  it  would  have  paid  for  in- 
terest at  the  rate  specified  in  the  bonds  if  they  had  run  to  their  maturity, 
is  about  $27,165,000.  At  first  sight  this  would  seem  to  bo  a  profitable  and 
sensible  transaction  on  the  part  of  the  governmeLL  But.  ..  the  surplus  thus 
expended  for  the  purchase  of  bonds  was  money  drawn  from  tlio  people  in 
excess  of  any  actual  need  of  the  government,  and  was  so  expended  rathor 
than  allow  it  to  lie  idle  in  the  treasury.  If  this  surplus  under  the  opera- 
tions of  just  and  equitable  laws  had  been  left  in  the  hands  of  the  people  it 
would  have  been  worth  in  their  business  at  least  six  per  cent,  per  annum. 
Deducting  from  the  amount  of  interest  upon  the  principal  and  premium  of 
these  bonds  for  the  time  they  had  to  run  at  the  rate  of  six  per  cont.  the 
saving  of  two  per  cent,  made  for  the  people  by  the  purchase  of  such 
bonds,  the  loss  will  appear  to  be  $55,760,000." 
15* 


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GEORGE,  HENRY. — Progress  and  Poverty,  New  York.  1888;  Free  Trade,  ib., 

1883;  The  Land  Question,  ib.,  1884;   Social  Problems,  ib.,  1888. 
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GIDE,  CHARLES. — Principes  d'economie  politique,  Paris.  1889. 
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Principles,  and  Practice  of  Banking,  '2  vol.s.,  London.  1882. 
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GLADDEN,  WASHINGTON. — Working    People    and    their    Employers,   New 

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Theory  and  Practice  of  tho  Foreign  Exchanges.  London,  1886. 
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socialen  Entwickclung,  Leipzig,  18815. 
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HODDER,  EDWIN.— The  Life  and  Work  of  the  Seventh  Earl  of  Sliaftesbury, 

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HOLLAND.  T.  E.  —  Elements  of  Jurisprudence,  New  York.  !*•<•<. 
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Restoration.  London,   18SS. 

IHERIXU,  RfiK)!.i'n.  vox. — /week  im  Reclit.  2  vols.,  2d  ed.,  Berlin,  18S.V 
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So'-iai    Reform,  //'..   !*<!:    Money  and  the    Nlechahism  «.f  Kxcliaiu-e.  i 

1>8I:    Investigations  in  I'urrency  and    Finance,  it,..    1SS|;    Eli  menu  ol 

Loiric.  ib..   issi. 
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KIRKI-I-,  TIIDMAS.  — AII  In<|n:ry  into  Socialism.  New  York.  ISss 
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Brannschweikr.  1SS:?:   G.>!d  mid  ( Veiin.  Berlin,   l"^."-. 
LAI-I;HLIX,  J.   L— The  Study  of    P.-iitieal    IVMII^IIIV.   N'-w  York.  1 

Historv  of  Bimetallism"  in   tlm    Tinted   Suites,   i/..,    lss»j;   Elomt-nts  o( 

Political   Econoinv.  ib.,  isss. 


346  AN  INTRODUCTION  TO  POLITICAL  ECONOMY. 

LAVELEYE,  EMILE  UE. — Bimetallic  Money,  translated  from  the  French,  New 
York,  1877;  Primitive  Property,  translated,  London,  1878;  New 
Tendencies  of  Political  Economy,  translated,  New  York,  1879;  Lft 
question  monetaire  en  1880  et  en  1881,  Bruxelles,  1881 ;  Le  bimetallisme 
internationale,  Pans,  1881;  Elements  of  Political  Economy,  translated, 
New  York,  1884;  Contemporary  Socialism,  translated,  ib.,  1885. 

LEROY-BEAULIEU,  PAUL. — De  1'Etat  social  et  intellectual  des  populations 
ouvrieres  et  de  sou  influence  sur  le  taux  des  salaires,  Paris,  1868;  La 
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1877;  Essai  sur  la  repartition  des  richesses  et  sur  la  tendance  a  uue 
moindre  inegalite  des  conditions,  ib.,  1880. 

LESLIE,  T.  E.  CLIFFE. — Land  Systems  of  Ireland,  England,  and  the  Conti- 
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LIST,  FRIEDRICH,  National  System  of  Political  Economy,  translated  from 
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LUBBOCK,  SIR  JOHN. — Prehistoric  Times,  New  York,  1872  ;  Origin  of  Civil- 
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McNKiLL,  GEORGE  E.,  ed.—  The  Labor  Movement,  the  Problem  of  To-day, 
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MAINE,  SIR  HENRYS. — Early  History  of  Institutions,  New  York,  1875; 
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MALTIIUS,  T.  R. — Definitions  in  Political  Economv,  London,  1827;  Essay 
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MARSHALL,  A. — The  Present  Position  of  Economics,  New  York,  1885. 

MARSHALL,  A.  AND  M.  P. — Th  ;  Economics  of  Industry,  London,  1881. 

MARX,  KARL. — Das  Kapital,  2  vols.,  Hamburg.  1885;  translated  by  Samuel 
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MILL,  JOHN  STLURT. — Representative  Government,  New  York,  1862; 
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MORGAN,  LEWIS  H. — The  League  of  the  Iroqnois,  Rochester,  1851;  Systems 
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MORSE.  J.  T.— Banks  and  Banking.     2  vols.,  3d  ed.,  Boston,  1888. 

MOKSKLM,   H. — Suicide,  New  York,  1882. 

MCI.FORD,  E. — The  Nation,  Boston,  1882. 

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PATTEN,  S.  N. — Premises  of  Political  Kconomy,  Philadelphia,  1885;  The 
Stability  of  Prices,  American  Economic  Association,  Baltimore.  1889; 
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PERIN,  CHARI.KS. — De  la  riehes«e  dans  les  societes  chretionnes,  2  vols., 
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BIBLIOGRAPHY.  347 

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RAE,  JOHN'. — Contemporary  Socialism.  New  York,  1884. 

RICARDO,  David. — Works,  with  notice  of  life  and  writings  bv  J.  R, 
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ROGERS,  JAMES  K.  THOROLD.— Historical  Gleanings,  New  York,  1870; 
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348  AN  INTR OD UCTION  TO  POLITICAL  ECONOMY. 

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INDEX. 


INDEX. 


_A_  !  Bill  of  exchange,  described,  197. 

Adam«,   H.  B.,  on  history  and  political    Bimetallism,  1W-1. 

economy,  l.'fc>.  Bland  bill,  coinage  of  silver  In  I".  S.,  ISM. 

Adams,  H.  C.,  definition  of  political  eeon-    Blumschll,  limitations  on  coutnu-ts.  So; 

oiny,  100;  on  public  debts,  Wo.  •'      on  tendencies  of  law,  130. 

Administration,  factor  in  a  national  eeon-     Book  credit,  H'S. 

oiny, *t.  i  Brotherly    love,   a   motive   of   economic 

Agricultural  stage,  described,  47.  }     activily,  1M. 

Amalgamated    Association   of    Iron  and 

Steel  Workers,  Intrudueed  sliding  scale,  ;  O 

Carman,  Edwin,  sufferings  on  account  of 
American  Indian,  economic  condition  of,  ,i|Spiaceincr.ts  of  labor  and  capital.  &>. 

Capital,  Its  new  Importance  a  cause  •  f 
Analysts,  economic  method,  132.  j  wononiu.  ,irubu.H1Ili  01  ;  dellned  by 


Anarchism,  distinguished  from  socialism, 


247. 


Anthropology  and  political  economy. 


Marx,  <>! :  freedom  of,  with  rvspei-l  to 
loans,  78;  factor  of  production  defined. 
104-5;  fixed  and  circulating,  100; 


Aquinas,   Thomas,  jn*tmn  [in-lium  and1      ,,y   ^.j,^   rl,n,,um(.d,   IOC;    incn-'asi-  of 

Interest,  318;  on  luxury,  l.M  ;   on  fair        ,,w.  ,||stlrik'iiNh.-.l  fn-m  capitalization. 

P1"1"'-  ls'3-  '-MS  i;i:  formation  of.  and  coiiMimi'tlon. 

Aristotle,  subordinated  economics  to  eth-  ..v.(  :, .  „,„,  hltlori  ,,,.,„  for  unil,ntf>  03. 

ics,  S-i ;  on  luxury,  154  ;  economic  ideas  Capital  /ati,.n.  (||Min«uisheil  fn.m  Capital. 

of,  :!!.-,  ti.  0,^  ,,, 

Arbitration,  -'-'i! ;  of  exchanue.  I'M.  '  Carey.  Henry  <\,  argument  for  protection. 

Artillcial  monopnli.^.  •,'l'.<-."il.  -JisVC,. 

Asceticism.  *elf->acri!leedeirenerate<1.vr7:>.  C,.,)si|s  esti,,i:if.  i,,f  w.Mlth.  117  X. 

Atmosphere,   inlluence    up^n    a    national  charitv.  «u'ie!n-e  of.  '.t'.!  ;  di'jfctii-nite.  'J7~>. 

economy.  •'«.  Child  I.iU.r.  ,-!Ti-t  .ni  earnlm.'"  "f  the  en- 
Avarice,  v.7.").  tlr,.  faimly.  --.'.' :  laws  for  le.xseiilnif  evils 

T3  (     of.  -.'.-.'.i  •<). 

Hanks,  chief  organs   f^r  iTe.lit-economy,  Christianltv.  .•rTer«  tli.>  hlehe<t  r,.n«-«Ttl"n 

."i!  ;  an  evidenee  of  the  iinlu-tnal   leio-  of   v,H-i,-'v.    II:    projfn-vi  .'f.  a  caiisi-   >f 

lutioii,    .>  ;     national    re-tnnlve     law-,  en  .no  i  i,-  |.r.,!.!rm-.  1.1 ;  if->i).<mli-  Idea* 

iij>->n,    not   itn    Infringement  of   Iilirrty.  <'f.  :ii7  s. 

7- .  -Jol   '•!.  Cireu'.atliu:  capllal,  I'Vl. 

lielvrium,    I_-itin    monetary    union,    I!'.';  fltli-s,  n->«' of.  in  ch«- trader  mid  cointpereu 

K.-on ists.  ::•.':..  state.  I'.i. 

H-'lnis,    on     wau'es    In     Industries    where  ('(-.Hi/alton.    dei'rndliiK     on     k'r»wt>)     of 

uomen  and  ehildren  work.  '.Ml  '.'.  lilk'Mer  wan's.  7i>. 

Beiitham,  .len-iuy.  restriction  of  Inherit-  ciearlnc  h"iis.-s.  ;'<\  •.'. 

anci-i.  :in7.  Cohii.  (iiintav.  |>.ir'>  of  |m!ltlral  ei'ono'iiv, 

Be«|iie>ts.  taxation  of.  :ic.  Ill;  tiM.>il.-.il  -.-!,.,,!  la  (.t-ruijuiy,  a.'». 

BINle,  description  of  pastoral  slutfc.  j.'i.  t    ..u.i^e.     ><•.•  Money. 


352 


IXDEf. 


Colbert,  mercantilist,  330. 

Collectivism,  247. 

Combinations,  always  possible  la  field  of 
natural  monopolies,  252. 

Commerce,  in  economic  stacres,  48:  min- 
isters to  necessities  not  to  luxuries,  as 
formerly,  59. 

"Common,"  survival  of  common  owner- 
ship, 48. 

Communism,  2-47-8, 

Competition,  advantages  of,  83:  disad- 
vantages, 83;  freedom  of,  and  demand 
and  supply,  182;  in  the  fleld  of  natural 
monopolies,  252. 

Comte,  Auguste,  the  father  of  sociology, 
10. 

Conrad,  Professor,  historical  school  in 
Germany,  324. 

Constitutional  limitations,  296. 

Consumers,  not  different  class  from  pro- 
ducers. 277. 

Consumption,  267-83 ;  difficulties  in  treat- 
ment of,  2C8:  defined,  268-9;  and  cap- 
ital formation,  269-71 ;  alleged  present, 
of  future  products,  271-2;  wasteful, 
276 ;  control  of,  27.  ;  analysis  of,  282. 

Contract,  freedom  of,  with  respect  to  labor, 
70. 

Co-opertition,  coercive,  and  voluntary, 
236-9. 

Copyrights,  249. 

Corporations,  one  aspect  of  the  industrial 
revolution,  58 ;  freedom  in  the  establish- 
ment of,  79 ;  when  suitable  for  public 
management,  201. 

Cossa.  Professor,  historical  school  in  Italy, 
32 1. 

Cost  of  production,  influencing  demand 
and  supply,  181. 

Craddock,  Charles  Ecrhert,  description  of 
Isolated  economic  life,  20. 

Craft  guilds,  a  method  of  uniting  labor 
and  capital,  02. 

Credit,  190-203;  advantages  of,  198-200; 
evils  of,  200. 

Credit  economy  described,  51. 

Crises,  278  9. 

Cromwell,  mercantilist,  320. 

Custom,  formerly  a  powerful  factor  In 
maintaining  Industrial  peace,  63. 

Customs  duties,  305. 

Cu*nmano,  Professor,  historical  school  in 
Italy.  324. 

Cyclops,  isolated  economic  life,  20. 


ID 

Debts,  public,  291-6. 

Deductive  method  described,  116 ;  Insuf- 
ficiency of,  120. 

Deductive  school, representatives  of,  321-3, 

Demand  and  supply,  179  83. 

Democracy,  industrial,  236. 

Dependence  of  man  upon  man  increases 
with  progress  of  industrial  civilization, 
26. 

Description,  part  of  economic  method,  121. 

Deterioration  of  the  masses,  absolute  and 
relative,  69. 

Direct  taxes,  806. 

Distribution,  213-03;  division  of  products 
depends  upon  industrial  strength,  171- 
2  ;  law  of,  depends  on  rate  of  increase 
of  factors  of  production,  :SJ3-4. 

Distributive  co-operation,  23r. 

Distributive  Justice,  aim  of  socialism, 
241-2. 

Division  of  products.  See  Distribution, 
171;  of  labor,  advantages  and  disadvan- 
tages and  remedies,  172-4. 

Draft,  described,  197. 

Drummond,  on  the  individualism  of  the 
natives  of  the  heart  of  Africa,  20. 

IE 

Economic  activity,  motives  of,  151-0. 

Economic  evils,  social.  84. 

Economic  freedom.  See  Freedom. 

Economic  goods.  defined,  145. 

Economic  laws,  124-127. 

Economic  life,  isolated  and  social.  19  ;  da- 
fined,  24:  not  for  self,  26;  stages  in  de- 
velopment of,  39;  the  different  stages 
not  exclusive,  51 ;  recent  development 
of,  55 ;  and  ethics,  &~> ;  and  the  state,  87. 
See  also  National  Economy. 

Economic  methods,  116  123. 

Economic  problems.    See  Problems. 

Economic  progress.  Ideals  of,  SO. 

Economics,  evolution  of,  311-326. 

Economists,  not  confined  to  the  material 
life.  25. 

Economy.    See  Economic  Life. 

Education,  value  of  labor  organizations. 
233;  compulsory,  coupled  with  laws 
against  child  labor,  250 ;  cnusc  of  in- 
creas->d  government  expenditures.  2f)l : 
expenditures  for.  In  Russia  und  in 
Switzerland,  301. 


IXDEX. 


853 


Eight  hour  day,  a  problem  growing  out  of 
the  industrial  ru volution,  59. 

Elementary  value,  178. 

Engel,  law  of  family  expenditure,  281-2: 
historical  scboul  in  Germany,  324. 

England,  comparison  of  agricultural  pop- 
ulation with  that  of  France,  34  :  restric- 
tions on  labor,  75  ;  landed  property,  78: 
corporation  laws,  79  ;  restrictions  on 
foreign  commerce  abandoned,  82 ;  bi- 
metallism, 195.  See  also  Great  Britain. 

Entrepreneur,  functions  of,  170-1;  and 
profits  of  monopolies,  21J-20.  See  also 
Profits. 

Ethical  aims,  an  essential  part  of  eco 
nomic  activity,  101. 

Ethical  standards.    See  Ethics. 

Ethics,  higher  standards  of.  a  cause  of 
economic  problems,  65;  and  political 
economy,  07 ;  and  the  economic  life  of 
nations.  So;  and  political  economy,  132; 
and  luxury.  373:  regulated  the  economic 
life  of  the  Orient,  314. 

Exchange,  usual  term  for  transfer  of 
goods,  177  :  arbitration  of,  199. 

Excise  taxes,  305. 

Expenditures,  family, '481-2;  government, 
increase  in.  289-92. 


Factory  Inspection,  226. 

Fair  price.  In  middle  ages,  IK;  in  modern 

laws,  13-'-3;  Wl. 
Family,  the  first    so-lal    unit,   30 :    true 

social  unit  In  economic  discussions,  201; 

expenditures  of.  2*1-2. 
Farmers'  organizations  230. 
Fawcett,    Professor,    Ideal    of   economic 

progress.  *•'>. 
Fawcett.  Mill nt,  definition  of  political 

economy.  I""'. 

Ferguson.  Adam,  on  luxury.  l.M. 
Fichte,  assistance  I.,  tin-  economist,  131. 
Finance  n    par!  nt  politlc.il  economy,  l.'i"  : 

defined,  287-M;  2S7  -'i»Xs  ;  source  of  eco- 

nomic  in<|uiry,  31". 
Fishing  trilx's  described.  1 1. 
Fixed  capital.  \W. 
Fluctuations    In    tho   volume    of    money, 

r.«>  -'. 

Forestry,  government  enterprise,  0>>. 
Form  value,  17S. 
France,  comparison  of  agricultural  popu- 


lation with  that  of  England,  S3;  re- 
strictions on  labor,  77 ;  Latin  monetary 
union,  192 ;  success  of  co-operation,  237. 

Franchises,  those  who  receive  them  bound 
to  render  service  to  the  public,  28. 

Fraser,  Dr.  Jai>:?st  on  obligations  of  the 
rich  to  personal  service,  244. 

Frederick  the  Great,  mercantilist,  330. 

Freedom,  of  the  uncivilized  man,  illusory, 
29 ;  relations  of  modern  economic  life 
to,  71  ;  denned,  73 ;  of  labor,  74  ;  of 
person,  74  ;  of  movement  and  acqui- 
sition, 74 ;  of  landed  property,  77;  of 
capital  with  respect  to  loans  78;  In 
the  establishment  of  enterprises,  79 ;  of 
the  market,  HJ ;  of  competition,  and 
demand  and  supply,  IK! 

Freemantle,  Canon,  on  rights  of  prune 
properly,  «*.i9. 

Free  Trade,  -JIM -10. 

O- 

George,  Henry,  land  nationalization,  996- 
7;  private  propeny  and  taxation.  30U. 

Germany,  restrictions  on  labor,  77  ;  cor- 
poration laws,  79;  restrictions  on  rat* 
of  interest,  79  ;  demonetization  of  silver. 
!'.'.';  productive  proinrty  and  public 
debts.  !i9.*>. 

Giddlngs,  social  (deals  in  economic  life. 
102. 

(ilde.  I'rofessor.  Fn-ncli  ot'onoiiilnt,  SiS. 

(iifts,  source  of  public  revenue,  2M. 

(iodin.  proiit  sliarlng  establUhnient  tu 
Guise.  France.  £tfi. 

(iold.     See  Mon.-v. 

(iovernnienl  reguliitioii<i,  lucnpa*1  In.  T' ; 
and  democracy.  K' ;  s«>me  of  tlie  func- 
tions of,  9»;  and  f. in->try.  U«» ;  prominent 
In  capital-formation.  'j;o  I  ;  nliouUl  lie 
a  m.-l'-l  employer.  •>!»:  ••x|H-ndllun*«. 
general  Increase  In.  '.SO  '-f.'  ;  n  partner 
In  prixluctlon,  •'»•>  I.  S»f  al«>  State. 

(ireat  Mrttaln,  exf-inlilure  of,  i.it. 

"  Greenbacks."  iv.'. 

(in-eks,  rea^iiiM  for  ha  vim;  n<>  comp>'«« 
political  i-ciiiioiny,  :il'.'-3;  rronoaitc 
Ideas  of,  3i:>  «. 

(itlllils.  me«lheviil.  di-scrilnil.  Hi"  '•'. 

Henry.    I'rof.-^^.r.    n-fii1-^!    to    Uike    out 

IMltent  on  :cIckT.lp(l,  i». 

Hewitt.  Hon.  A.  S  .  ni-oirnlziM  tho  validity 
of  the  law  tliiii  wiu'i-.i  ,l.-;«-ii.|  on  klulid- 
ard  of  life.  '.VJ. 


554 


IXDEX. 


Hildebrand,  historical  method,  118;  In- 
ductive method,  323. 

Historical  school,  rise  of,  and  description, 
118-123  ;  representatives  of,  323-6. 

History,  necessity  of  Its  study  In  political 
economy,  37;  and  political  economy,  131; 
and  political  economy,  311-2. 

Hunting  and  flshing  stage,  described,  42. 

Hygiene  and  political  economy,  131. 


Ideals,  for  economic  progress,  86;  Impor- 
tance of.  In  study  of  political  economy, 
101. 

Idleness,  Involuntary,  260-1. 

Immigration,  limitations  on  freedom  of 
movement,  76. 

Improvement,  possibility  of,  for  the  mass- 
es, a  cause  of  economic  problems,  65. 

Improvement,  displacement  of  labor  and 
capital,  resistance  to,  60. 

Income  tax,  308-7. 

Indian.     See  American  Indian. 

Indirect  taxes,  305--6. 

Individual,  economic  activity  of  the,  32; 
enterprise  of,  necessary,  89;  and  society, 
distinction  In  political  economy,  1-16. 

Individual  and  social  capital  distin- 
guished, 165. 

Individual  and  social  cost,  182. 

Inductive  method  described,  116. 

Industrial  democracy,  236. 

Industrial  society,  defined,  50. 

Industrial  stage,  described,  49. 

Industrial  revolution,  cause  of  economic 
problems,  55. 

Inflation,  188. 

Inheritances,  taxation  of.  807. 

Insurance,  control  over  consumption,  280. 

Instruments  of  credit,  197. 

Intemperance,  261. 

Interest,  restrictions  on  rateof,  78;  defined, 
21G-17 ;  ideas  of  Aristotle,  316. 

Internal  revenue,  taxes,  305. 

International  law  and  political  economy, 
138. 

Italy,  Latin  monetary  union,  192;  econo- 
mists, 324. 

35L 

Knies,  historical  method,  118;  definition 

of  credit,  1%:  historical  method,  323. 
Knights  of  Labor,  223. 


Labor,  three  general  historical  conditions 
of,  35  ;  and  tbf  capitalistic  mode  of  pro- 
duction, 62;  and  capital,  plans  for  unit- 
ing, 63;  factor  of  production,  162;  and 
protection,  207-8 ;  organizations,  nearly 
all,  temperance  societies,  232 ;  organi- 
zations, educational  value  of,  233 ; 
growth  of,  229;  natural  growth,  230; 
opposition  to,  230;  labor  problems, 
source  of  economic  Inquiry,  313. 
See  also  Child  Labor  and  Woman 
Labor. 

Laissez-faire,  108,  125  doctrine  of  the 
Physiocrats  and  Adam  Smith,  321. 

Land  nationalization  and  muuicipallza- 
tlon.  296-8. 

Landed  properly,  freedom  of  transfers,  77. 

Lane,  Jonathan  A.,  value  of  personal 
property  and  real  estate  In  Boston, 
306. 

Lampertico,  Professor,  historical  school  in 
Italy,  324. 

Ijitin  monetary  union,  192. 

Laveleye,  on  the  evolution  of  property,  37; 
definition  of  political  economy,  110  ;  on 
luxury,  154 ;  the  best  order  for  human 
affairs,  26^  ;  Belgian  economist,  325. 

Law.  evolution  of,  36 ;  and  political  econ- 
omy, 134-9. 

Laws,  restrictive,  may  increa=e  real  free- 
dom, 72 ;  no  longer  special,  but  general, 
73. 

Leslie,  Introduced  German  ideas  into  En- 
gland. 324. 

Lexis,  Professor,  historical  school  in  Ger- 
many, 324. 

Legislation,  a  factor  in  a  national  econo- 
my, 33. 

Liquors,  consumed  in  the  United  States, 
155-8. 

Lotze,  Hermann,  assistance  to  the  econ- 
omist, 131. 

Louis  XIV.,  on  royal  expenditures,  272. 

Lowell,  J.  K.,  definition  of  political  econ- 
omy, !>4. 

Lubbock,  Sir  John,  on  the  individualism 
of  savages,  'M ;  the  true  savage  neither 
free  nor  noble,  40. 

Luxury,  defined,  153;  public  and  private, 
151 ;  272-6. 

Luzzati,  Professor,  historical  school  In 
Italy,  324. 


K'DEX. 


855 


Maine,  Sir  Henry  9.,  o  i  the  change  In  lepil 
conceptions,  30 ;  civilized  man  not  con- 
scious of  lepal  rules,  40;  on  common 
property  lu  land  In  pastoral  stajre,  4«; 
on  property  in  village  communities,  4?  ; 
"  sharp  practice  and  hard  bargaining," 
t!ie  market  law,  CO  ;  obedience  to  law  in 
Civilized  nations,  71  ;  economic  Inca- 
pacity of  lawyers,  130;  economic  classes 
in  India,  314. 

MaJthus,  cited,  ll.">;  on  population,  162-4; 
The  Theory  of  Population,  :tiJ. 

Multhu.sianism,  l'i'J-4. 

Man,  his  activity  a  chief  factor  in  a  na- 
tional economy,  3-J ;  original  and  at- 
([tiired  powers,  14.~>. 

Margin  of  cultivation,  detlned,  215. 

Market,  freedom  of.H-.1;  theory  of  the,  27s. 

Marshall,  Professor,  position  between  de- 
ductive and  historical  .school,  321. 

Marx,  definition  of  capital,  (i-'i ;   cited,  US. 

Massachusetts,  He  port  of  Bureau  of  Stalls- 
tics  of  labor  on  family  e.x|>eiitliture,  :W2. 

Mercantilists,  conception  of  political  econ- 
omy, 1OJ;  economic  ideas  of,  320-1. 

Methods.    See  Economic  Methods,  117. 

Middle  Ages,  reasons  for  having  no  com- 
plete political  economy,  313;  economic 
ideas  of,  3 1 7-*. 

Mill,  John  Stuart,  on  limitations  on  con- 
tracts,^; cited.  lt»;  d"!In'tioriof  IN.III- 
Ical  economy,  li*J:  parts  of  political 
economy,  114;  on  economic  Incapacity 
of  lawyers,  1-Vi ;  man's  work  In  creating 
utilities  14:5;  dennltion  of  cn-dit,  1'X, ; 
public  utility  the  basis  of  private  prop- 
erty. •.".«»;  follower  of  Hlcardo,  ••{-.*•,' 3. 

Milling,  an  example  of  the  Industrial  n-v- 
olution,  '>'•'. 

Moin-y.  th«-  amount  niN-«liil,  ls;t  ini;  Men* 
of  ArNtotle.  :llrt. 

Motiey-ecDiioiny.  descrlU'd,  ,"il. 

Monomi'lalli-m,  1W. 

M"ii..|.,,!ies.   |ip'Hts  of.  '.M'.i  -,'0;    nrtin«-|nl. 
^t:i-."tl  ;  tirllllcial  will  (»•  overthrown  by 
public  ownerslilp of  natural  iuono|x.|ii-«, 
'.'.'•;  :    nalnral.  n-strlctlon  on  ••Mnbll.sh-  j 
meiit  of,  s);  natural.  charui-'.-nMics  of.  ' 
•,'"i!--.':  natural,  advantages  claimed  for 
public  owniTHhlp.  '.'':(  •*. 

MolUesullleii,  citi«J,  1.36;  ou  eii*0d!turos 
of  toe  rich,  27a. 


Mosaical  Code,  prohiblLi  alienation  of  land, 
78;  prohibits  usury,  78. 

Motives  of  economic  activity,  151 -9. 

Mulford,  dcOnltlon  of  itie  State,  30;  free- 
dom realized  only  under  tfovernoieut, 
71. 

Mun,  Thomas,  mercantilist,  3aO. 

Munlcipallzatlon  of  land,  2M-8. 

1ST. 

Nasse,  Professor,  historical  school  In  G«r- 
many.  Si*. 

National  economy,  defined,  22;  political 
Independence  the  basis  of,  29  ;  the  two 
l?reat  fachm  In  a,  81  ;  a  historical  prod- 
uct, 35. 

National  Fanners'  Alliance,  23t). 

Nationalization  of  Ian. I,  •-".•'.  8. 

Naturi-,  factor  of  pi.xl'icii   n.  lflrt-1. 

Natural  law  and  political  economy,  106. 

Natural  laws,  what  are  they  ?  124. 

Natural  monopolies.    S»t»  Monopolies. 

New  York,  Increase,  lu  expenditures,  280. 


observation,  part  of  economic    method, 

1*1. 

Ohio.  Increase  In  expenditures,  290. 
opium  habit,  i.v». 

orient,  the.  economic  Ideas  of,  314-5. 
Over-production  and  under -consumption. 

H'J  ;    really  under-priKluctlon.  27H. 


I'anlc.s  27S  0. 

PatH-r  money.  H7-9;  Is  It  safe*  1«S-0. 
Pirslinony.  public,  evil  results  of.  %V\  V 
Past  and  present,  misleading  duimarlsotM 

Pn-stonil  statfe.les.-rlli.Hl.  u. 

Patents.  2W  ,M. 

Patriotism,  a  motive  of  economic  activity, 

!.V,'. 

Patrons  of  husbandry,  v?>'. 

Pnii|»Tism.  2rtl. 

P.'.-l.  sir  ll"biTt,  lntpxlucp.1  pollco  for,-e. 

P.-rln.  Pr..fcs*,r.  ll.-lclnn  economist.  *r.. 
Philosophy  Hiul  |<niitii-itl  i-coiioiiiy.  rl>'. 
Physiocrat.*,    first     sclentlllc     ec<>nom !«(.«, 

312  :   ec.)nomlc  Ideas  of.  .'til. 
Phy«lo!ojy  »od  political  emixuny,  181. 


856 


IXVEX: 


Piece  work,  925. 

Place  value,  178. 

Plato,  subordinated  economics  to  ethics, 
85;  on  luxury,  154;  economic  ideas  of, 315. 

Pliny,  economic  Ideas  of,  316. 

Political  economy  a  part  of  sociology,  13  ; 
basis  of  other  life-spheres,  16;  the  best 
introduction  to  sociology,  17 ;  necessity 
of  historical  study,  37 ;  midway  between 
natural  and  mental  and  moral  sciences, 
37;  has  shown  possibility  of  improve- 
ment for  the  masses,  65 ;  and  ethics,  67: 
derivations  of  the  terra,  94 ;  defined,  95; 
simpler  than  private  economies,  97 ; 
regards  permanent  interests,  100  ;  both 
a  dynamic  and  a  static  science,  100 ;  is  it 
a  science?  103;  deflned,94-110;  main  parts 
of,  111-115;  a  useful  science,  128-30;  and 
philosophy,  130;  and  physiology  and 
hygiene,  131;  and  history,  131;  and 
ethics,  132:  and  religion,  133;  and  an- 
thropology, 134;  and  law,  134-9;  and  his- 
tory, 311-12;  In  Germany,  323-4;  In  Eng- 
laud,  321 ;  in  France,  324-5;  In  Italy,  321; 
In  Belgium,  325  ;  in  United  States,  325. 

Political  freedom.    See  Freedom. 

Political  Independence,  the  basis  of  a 
national  economy,  29. 

Politics,  purification  of,  secured  by  public 
ownership  of  natural  monopolies,  256. 

Popular  suffrage.  See  Suffrage,  262. 

Population,  growth  of,  162-4. 

Potter,  Bishop,  extravacance  connected 
with  funerals,  280. 

Price,  79. 

Private  business,  confusion  of  public  and, 
01. 

Private  and  public  economy,  distinction 
between,  96. 

Private  and  public  responsibilities,  92. 

Private  welfare,  not  identical  with  public, 
98. 

Problem  of  the  working  day,  effect  of  the 
industrial  revolution,  59;  economic  prob- 
lems, not  local,  55;  social,  259-63. 

Prodigality,  272-fi. 

Producers,  not  different  class  from  con- 
sumers, 277. 

Production,  elements  often  overlooked  In 
statistical  estimates,  22;  organization  of 
factors,  168  74;  and  distribution  nut 
sharply  separated,  213;  disproportion- 
ate, cause  of  crises,  278;  government,  a 
partner  in,  300-1. 


Productive  co-operation,  237. 
Productive  domains,  source  of    govern- 

ment revenue,  294. 
Productivity,  Increase  of,  In  modern  times, 

174. 
Profits,  defined,  217-18;  of   monopolies, 

219-20. 
Profit-sharing  In  United  States,  235;   In 

France,  236. 

Promissory  notes  described,  197. 
Property,  historical  changes  In  the  con- 

ditions of,  36  ;  freedom  of  landed,  77  ; 

defined,  214-15  ;  private,  limitations  on, 

299. 
Protectionism,  204-10;  diversifled-natural- 

iudustry  argument,  201  ;    infant-indus- 

try-argument, 204;    statistics,  208;   an 

historical  growth,  209. 
Prussia,  free  trade  in  land,  78. 
Public  business,  confusion  of  private  and, 

61. 

Public  debts,  294-6. 
Public  finance.    See  Finance. 
Public  luxury,  when  justifiable,  274-5. 
Public  parsimony,  evil  results  of,  303-5. 
Public  and  private  economy,  distinction 

between,  96. 

Public  and  private  responsibilities,  92. 
Public    prosperity,  increased    by  public 

ownership  of  natural  monopolies,  253-4. 
Public  resources,  better  utilization  of,  308. 
Public  spirit,  a  motive  of  economic  activ- 

ity, 152. 
Public  welfare  not  Identical  with  private, 

98. 


Reform,  social,  245. 

Reformation,   Protestant,   effect  on  eco- 

nomic inquiry,  313. 
Relizensteln,  Baron  von,  historical  school 

In  Germany,  324. 
Religion,  progress  of,  a  cause  of  economic 

problems,  65;    and   political  economy, 

133  :  a  motive  of  economic  activity,  152. 
Remedies  for  evils  of  economic  freedom, 

8»  ;  for  evils  of  minute  division  of  labor, 

174;  for  social  evils.  259-63. 
Rent,  defined,  216;  land  nationalization, 

296-7. 
Restrictions,  on  labor,  77;  on  the  establish- 

ment of  natural  monopolies,  80. 
Restrictive  laws  may  increase  real  free- 

dom, 72. 


IXDEX. 


3S7 


expendiiun-s.  Wi;   permanent  •ourres 

of,  293-4. 
Ricardo,   David,    economic  doctrines  of. 

322. 
Riches,  sudden,  cause  of  economic  prob- 

lem", 60. 
Rogers,  Professor  J.  E.  T..  on  labor  or- 

ganizations in  Kngland,  231. 
Romans  reasons  for  having  no  complete 

political  economy,  313;  economic  Ideas 


Roman  law,  on  property,  214  ;  Important 
In  economic  studies,  •'J17. 

Ro;mm  luxury,  2T-'i. 

Roscher,  William,  parts  of  political  econ- 
omy, 112;  historical  method.  1  W  :  defi- 
nition of  credit.  IIW  ;  on  development 
of  economic  lde.ua,  318-9;  historical 
method,  323. 

Itiiiiiliii,    Pr  ifeos 
Germany,  324. 


r,    historical  school   In 


Sax,  Professor.  historical  wh'x>l  In  Oer- 


Slarery.  hisU>rtrml  condition  of  Ubor.  83. 
Sliding  scale  Introduced  In  Iron  Industry, 


Smith,  Adam,  uses  *'  manufacturers  "  for 
skilled  artisans,  03  ;  laws  of  wttleincnu 
opprt-sBlve  M)  the  poor,  75  ;  ciUM,  77  ;  on 
causes  of  differences  of  wagn,  tti-A; 


N  »-lal  and  Individual  capital  dlMlnjniisbM, 

ltx'>. 

Social  and  Indlrldual  cont,  182. 
S*K'ial  evlla,  also  economic,  M. 
S»x-ial  problems.     Se*  Problems. 
•v»-ial  Ili-forni.  'Jl.'i. 
Socialism,    2*>-«;     Mrenpth    of,    24^-4; 

weakness  of,  ittVft. 
Si  «-lali-ts,  do  not  attark  capital  In  llaelf, 

<ti  ;  cnanu-ler  of,  2*^7. 
Society,  un  orininlsm,  14;   dejiartmenLs  of 

MN-iai   life,    r.  ;   Miclety  and  linllvj.iii.il. 

illstlnctlon  In  iiolltlcal  e<i>oomy.  I4A. 
So"-ioii>if)  inciii'lct  political  economy,  1  J  ; 

ilcdii'-.l,    II;    pic-4Mi   condition  of    th« 

si-leni-e,  10  ;  |R>llllcal  tvuuumy  the  besl 

iiitriKluctloii  to,  17. 
S-  .11,  Influence  upon  a  national  economy,  SI. 


many.  .'124.  I  Spencer.  Herbert   KiujlWi  xx-iolivl-u  17. 

Say.    Jean  Baptlste,    the    theory    of    tin-  j  Standard  of  Comfort,  defined.  221-3. 
market.  27*.  !  Standard  of  life  deflm-d.  2-.'!  3. 


Schitille,  Professor  Albert,  (icrmansocloliw 

|ri-t,  17;  lileal  of  economic  progress,  *'>; 
historical  school  In  »•«••  :niiuv,  :i.'l. 
Scheel,  von,  l'r"fess.,r.  di-llnltion  of  |»>!ltl 
cal  economy.  '.*'•  '•  :  lil-toric.il  school  in 
(icriiKuiy.  .'!•.'!. 


State,  deflnetl,  ,V  ;    ntid  economic  life,  ST. 

S»-«'  also  (Joveniment. 
Slate  action,  utility  the  criterion  of.  «7. 
Mate   ownership  of   natunil   mon<>|«>lle«. 

li'lvanbih'es  of,  2M-1*. 
Statlstlcnl  metliol.  117. 


;,    |Ni!ilical   economy  ilevelop<-,l  I  StMI.MIcx,   In  nr 


for  and  inrnln«t 


for  pp'inotlni:  tin-  "ell  -U-intf  of  Mx-ieiv. 

(">:>  ;     part-    of    |»'lltic.il     ec.inomv.     II'.1: 

hl-loncal  »ctn>.  i|  in  (ii-nnany.  •'!'.'> 
S>-lf-in!i"'c-t.  iii  it    a    din-taut    meii-iinililf 

fon-c.  }•>:>;  a   moine  «.f  ,-,;  .[imnlr  urll  .  - 

lt>.  I"-!. 

S'-rfilom.  !ii-toric.il  cuiiilillnii  of  lat»,r.  :i'\ 
N-I  r.i.  ni'-rcantill-:.  •'!•-'". 
Shaw,  IIP.  A,t»-rl.  mi  i-o.ojn-ratlv.-  C,»,J«T» 


protection.  2»'.». 
Steiiart.  Sir  Jiut:e«.  iU-nnltlon  of  polltl<-al 

ecoiiomv,  K'.i;  men-nntllMt.  ~J". 
Strik.-s.  Mnvev«  atnl  fnilure  of,  'JS2. 
Mib-tn-BMiry  sy-tem.  ->w  '.» 
Miffniije,  r'->t:l.t  ,.n  ,.f.  not  a  remedy  f.-r 


Mipplv  ana  ileiniiml.  170  sri 
swit/erland  pn>|«o-«-H  Inii-rnattonal  factorr 
le^i-Ulloii.  ;>.    Ijilti  muiicUr)  uuioii, 


t;o:i    U'lW'-cn    lil-torlcal    uud  dcdtlrU^i- 

M-hooI.  --1. 

SiiviT  .j-ic-tion  nn<l  blnict.illii.ij).  l'J2. 
M:\IT.     S<-«-  Mon.-y. 
>I-iii"iiJl,  dfliuliiuii  of  jKililii-al  ccouumy. 

HIT. 


TarlJ,  301  in. 

Tr.i,  diriN-t.  a»V 

Taxution,  2W-*w ;  not  an  rrll.  *il  .  :n- 
crea.x-s  «lth  fn-»i!om.  3M  ;  lncr'-H*.-i 
producttoo,  303 ;  letter  »-lJii<m'U'.  ol 


S58 


INDEX. 


burdens,  305-6 ;  better  utilization  of 
public  resources,  308. 

Taxes,  indirect,  305;  excise,  305. 

Temperance,  in  labor  organizations,  232. 

Territory,  a  chief  factor  in  a  national 
economy,  31. 

Thucydides,  action  and  reaction  the  ex- 
planation of  historical  occurrences,  33. 

Tobacco,  consumed  in  the  United  States, 
158. 

Tocquerille,  de,Amerlcan  intelligence  and 
division  of  labor,  174. 

Toynbee,  representative  of  historical 
school  in  England,  324. 

Trades  and  commerce  stage,  dest-ribed,  48. 

Trades  unions,  228. 

"  Tramp  laws,"  75. 

Transfers  of  goods,  economic  stages  of,  50; 
177-210. 

Truck  economy  described,  50. 

Trusts,  a  step  in  the  evolution  of  industry, 
58  ;  when  suitable  for  public  manage- 
ment, 261. 

TJ 

Underconsumption  and  overproduction, 
149. 

Under-production  cause  of  crises.  2T8. 

United  States,  restrictions  on  labor,  77; 
usury  laws,  79  ;  corporation  laws,  79  ; 
freedom  of  domestic  trade,  82 ;  Increase 
In  federal  expenditures,  290. 

Usury  laws,  78. 

Utilities,  denned,  143-5. 

Utility,  criterion  of  State  action,  87  :  con- 
crete, defined,  269 ;  pure  abstract,  de- 
fined, 2C9. 


Value,  defined,  177-8 ;  In  use  and  In  ex- 
change, 178;  elemental  y,  form,  place, 
178-9. 

Voltaire,  on  lawyers,  136. 


Wages,  of  superintendence,  217 ;  and  the 
wage  system,  221-7 ;  causes  of  differ- 
ences of,  224-5. 

Wagner,  Professor,  economic  ideal,  87 ; 
parts  of  political  economy,  112;  histor- 
ical school  in  Germany,  324. 

Walker,  cited,  115;  definition  of  money, 
184  ;  on  a  gradual  Increase  of  money, 
191. 

Wants,  and  the  growth  of  civilization,  70 ; 
desirable  and  undesirable,  153. 

Ward,  Lester  F.,  American  sociologist, 
17;  cited.  101, 

Wasteful  consumption.  276-7. 

Water  privileges,  influence  upon  a  na- 
tional econony,  31. 

Wealth,  defined,  146. 

Women,  labor  of,  often  overlooked,  22 ; 
labor  of,  effect  on  wages  in  general,  223. 


Xenophon,  economic  ideas  of,  316. 


Young,  Arthur,  on  property,  267. 


Date  Due 


APR  9 


19fi 


Library  Bureau  Cat.  No.   1137 


